The Federal Open Market Committee will announce its final decision on interest rates on December 10. Fixed income market expectations on interest rates have swung markedly in recent weeks, but currently anticipate that policymakers will most likely cut interest rates.
On the one hand, the minutes from the October meeting were relatively hawkish. At that meeting, one policymaker voted to hold rates steady, rather than the cut that was implemented. However, other policymakers are comfortable with more aggressive cuts to interest rates. Weak labor market data should that surface, has the potential to sway the FOMC towards a cut. There are also some economic risks from the impact of the recent government shutdown.
Disruption to Employment Data
Due to the government shutdown, the Bureau of Labor Statistics has canceled October’s jobs report and November’s release will be later than previously scheduled on December 16. That’s after the FOMC meets on December 9-10. However, policymakers have noted that they have ample other data sources that can inform their decision-making beyond the Bureau of Labor Statistics reports.
September’s jobs report, though now fairly stale, continued the recent theme of a softening jobs market as the unemployment rate ticked up, but without major causes for alarm as the economy still created jobs.
Jobs data is the main focus of decision-makers currently, inflation remains above target. However, it appears that, at a high level, differing views on the trajectory of the jobs market are the main driver of alternate perspective on interest rates currently.
Recent Fed Speeches
Recent speeches from policymakers have been mixed. Christopher Waller has outlined the case for lower interest rates for some time. Michelle Bowman has taken a generally similar position. Stephen Miran, Trump’s recent appointee, has so far pushed for aggressive rate cuts. However, although this group has been relatively vocal in calling for lower rates, it is not clear this is the view of the overall committee.
For example, it was telling that Jeffrey Schmid did not agree with cutting rates in October. Furthermore, the FOMC’s Summary of Economic Projections from September had 9 policymakers looking to hold rates at or above the now-current level of 3.75% to 4% and 10 inclined to cut them further in 2025. Of course, the economic picture has evolved since September, but it seems that monetary policy may remain finely balanced. Trump’s expected upcoming nomination of a new Fed Chair may complicate the picture, too.
What To Expect
December’s decision from the FOMC is relatively uncertain. For now, fixed income markets predict a cut, but there remains a good chance rates could be held steady at their current level of 3.75% to 4%. It’s likely there will be dissents to whatever the FOMC elects to do, perhaps on both sides of the interest rate decision.
Any material jobs news between now and the December 10 decision may be particularly impactful to the Fed’s decision-making process. However, the overall situations appears to be that the FOMC is in the process of cutting rates gradually, and the pace and slope of interest rate cuts is the main question, rather than the fundamental direction for interest rates.