Recent Data Gives Fed Something to Talk About

The Fed certainly has a lot to think about since their last meeting on September 18. That’s when their new easing cycle began, as they cut their benchmark Federal Funds Rate (the overnight borrowing rate for banks) by 50 basis points, bringing it to a new range of 4.75% to 5%.

While the Fed has a dual mandate of price stability and maximum employment, in recent years they’ve been more focused on taming out-of-control inflation, given that the labor market has been strong. They began a tightening cycle in March 2022, ultimately hiking the Fed Funds Rate eleven times.

Yet over this past summer, cooling consumer inflation and rising unemployment caused the Fed to acknowledge that the time had come “for policy to adjust.” Members acknowledged the need to shift their focus back to both aspects of their dual mandate.

Since the Fed’s meeting on September 18, however, the BLS Jobs Report for September was reported on October 4 and there was a big upside surprise of 254,000 jobs created, well above estimates of 140,000. The report had a different tone than the softer labor sector data we had seen in recent months, as it showed strength on multiple fronts. Then a few days later, September’s Consumer Price Index revealed that inflation was hotter than economists had forecasted.

So, could these reports change the Fed’s path for future rate cuts?

The minutes from the Fed’s September 18 meeting provide important guidance, as they noted:

In other words, the Fed is acknowledging the subsequent revisions to the job growth figures that occur in the BLS report, and they want to confirm the data from multiple sources. This suggests that the strong September data alone is not going to change their path for rate cuts.

Several Fed members also spoke after the CPI data was released on October 10, and they shrugged off the hotter than expected report.

While the Fed continues to stress that they will “carefully assess incoming data, the evolving outlook, and the balance of risks” before making any further policy adjustments, their recent commentary suggests they remain committed to their easing cycle and further rate cuts at this time.

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By Shelly Williams