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The government shutdown has ended and new government data will soon start to roll out ahead of the next Federal Reserve policy announcement on Dec. 10. The modest uptick in inflation lately will keep markets guessing, but several estimates of payrolls from private sources in recent days suggest that the case for more easing still has the edge.
Numbers published by ADP and Revelio Labs reflect an ongoing slowdown in hiring in October. A downtrend in nonfarm payrolls is also conspicuous in another estimate through last month by LinkUp.
A rise in job cuts in October is another factor pointing to a bias for a rate cut via recent data.
“October’s pace of job cutting was much higher than average for the month. Some industries are correcting after the hiring boom of the pandemic, but this comes as AI adoption, softening consumer and corporate spending, and rising costs drive belt-tightening and hiring freezes. Those laid off now are finding it harder to quickly secure new roles, which could further loosen the labor market,” said Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas.
A new forecast from Goldman Sachs estimates that nonfarm payrolls likely fell by 50,000 in October.
But if all this sounds like a slam-dunk for another rate cut, the Fed funds futures market is reflecting new doubts and is now pricing in a coin toss on the central bank’s decision for Dec. 10. That’s a big shift vs. recent history, when the market was clearly leaning in favor of a ¼-point cut in the target rate.
What changed? Lingering inflation concerns are a key factor. Boston Fed President Susan Collins, for example, expressed reluctance for another round of easing in comments on Wednesday:
“Given my baseline outlook, it will likely be appropriate to keep policy rates at the current level for some time to balance the inflation and employment risks in this highly uncertain environment. I see several reasons to have a relatively high bar for additional easing in the near term.”
The outlook, however, is unusually fluid as a cascade of delayed economic reports is scheduled for release now that the government will start publishing reports again. “Markets will face a flood of delayed data releases,” said Jim Reid of Deutsche Bank.
“Historical precedent from the 2013 shutdown suggests the September employment report may be among the first to be released, potentially within three business days after reopening.”
David Seif, chief economist for developed markets at Nomura Securities, tells AP that he expects the Fed will keep rates steady in December. “There is a large segment of the Fed that is uncomfortable with a December cut,” he said.
One notable exception: Fed Governor Stephen Miran, who recently said:
“If you keep policy this tight for a long period of time, then you run the risk that monetary policy itself is inducing a recession. I don’t see a reason to run that risk if I’m not concerned about inflation on the upside.”