On November 7, the Federal Open Market Committee is expected to again lower interest rates after an initial cut on September 18. Markets currently expect a 0.25% reduction in interest rates to 4.5% to 4.75%. However, a larger 0.5% reduction is possible depending on reported economic data over the coming weeks.
Meeting Timing
The FOMC will meet November 6-7 announcing its interest rate decision at 2pm E.T. on November 7. It is slightly unusual that the decision will be announced on a Thursday rather than the typical Wednesday. This will be followed by a press conference with Fed Chair Jerome Powell at 2:30pm. Economic projections are released at every other meeting, and were last updated on September 18, so they will not be updated at the November FOMC meeting. Minutes of the meeting, offering greater color on the decision making process, are then typically scheduled to be released 3 weeks later.
The FOMC’s Current Position
The FOMC is currently appears to be dialing back restrictive monetary policy as inflation is now clearly within sight of their 2% target, and the labor market has seen broadly rising unemployment over the past 12 months, albeit from low levels.
The Personal Consumption Expenditures Price Index showed 2.2% annual inflation to August 2024, or 2.7% with food and energy price trends excluded. That’s down significantly from the peak levels of 7% in summer 2022, which prompted the FOMC to raise rates aggressively. In addition, even at the best of times, the FOMC has been unable to hold inflation precisely at 2%. As such, deviations of around one percent from target are historically quite typical.
The unemployment rate is 4.2% for August 2024. That’s up from around 3.5% for much of last year. Unemployment still remains at low levels by historical standards and the FOMC has expressed confidence in the job market, seeing a return to greater balance, rather than the start of ongoing weakening. Nonetheless, even relatively small rises in unemployment have often bought recessions historically.
As Powell said on September 18. “We know that it is time to recalibrate our policy to something that is more appropriate given the progress on inflation and on employment moving to a more sustainable level. So the balance of risks are now even.”
Upcoming Data
As always the FOMC will watch incoming data closely before their next meeting. Perhaps the most significant of many reports will be two jobs reports on October 4 and November 1. Here the FOMC is generally comfortable with some cooling in the jobs market, but is looking to avoid a more abrupt rise in unemployment that could signal a recession.
For inflation, key data points will come with the Consumer Price Index for September on October 10, and the PCE inflation release also for September on October 31. The broad expectation here is that inflation should continue to trend toward 2% and won’t bring cause for alarm. However, jobs data may prove more significant in shaping the FOMC’s thinking. If there is a further rise in unemployment, then the FOMC may be prompted to make larger interest rate cuts to counter recession risk.
What To Expect From The FOMC
It is highly likely that short-term interest rates are cut again on November 7, according to fixed income markets. Yet, it is unclear how large the cut will be, with a 0.25% cut viewed as more likely than 0.5%. However, there’s ample time for that to change. More fundamentally, markets are assessing how low interest rates will ultimately go. Currently, short-term interest rates could be around 3% by late 2025, but markets project a broad range of outcomes, implying that anything from 2% to 4% is possible.