Inflation Is Stubborn And Jobs Are Plentiful. So Why Does Everyone Expect Rate Cuts? | Global News Avenue

Inflation remains stubborn and the job market rebounded in recent reports, but it hasn’t been enough to undermine expectations that the Federal Reserve will cut interest rates in December.

Financial market participants widely expect Fed officials to cut the central bank’s benchmark interest rate federal funds rate The central bank’s policy committee will raise the rate by 0.25 percentage points at the next meeting. Markets priced in an 85% chance of a rate cut on Friday afternoon, according to CME Group’s FedWatch tool, which forecasts interest rate trends based on federal funds futures trading data. This will be the third rate cut in as many meetings as possible.

Fed officials are trying to lower interest rates enough to boost the economy and prevent unemployment from soaring, but not so fast that they reignite the high inflation that roiled the economy in 2022. The federal funds rate affects interest rates on a variety of loans, including mortgages and credit cards, so cutting them can encourage more borrowing and spending, making the economy run “hotter.”

The Fed is expected to continue the rate cuts policymakers have already taken Telegram is coming It’s been months. Earlier this week, Federal Reserve Governor Christopher Waller said he Tend to support interest rate cuts. However, he said he was paying close attention to recent inflation data. Still above the Fed’s 2% annual interest rate target And there hasn’t been much progress in the right direction lately.

Then, on Friday, a job market report showed the economy was still adding jobs, rebound protection from storm-related damage and reduce the risk of high unemployment that the rate cuts were supposed to prevent. The Federal Reserve “dual mission“Fighting inflation and protecting the job market are two goals that sometimes conflict with each other.

A self-fulfilling prophecy?

Despite the positive trajectory of recent economic data, economists have offered various explanations for why the Fed seems likely to cut interest rates.

One possibility: Fed officials may be taking their cues from financial markets and hoping to avoid surprises. This is the theory proposed by Burien Capital Markets economists Conrad DeQuadros and Jon Ryding.

“The Fed appears unwilling to disappoint market expectations, so the act of pricing in the outcome of the next Fed meeting effectively determines the outcome of the monetary policy decision,” they wrote in a commentary. “If the futures market prices a rate cut on the day of the next Fed meeting “With a 10% chance, we’re guessing the Fed will skip the December meeting, but if the market is pricing in a 90% chance, as it is now, we think the Fed will cut rates.”

Another possibility is that the job market is indeed slowing, if not collapsing, so the Fed remains under pressure to step in and rescue. In the first half of the year, an average of 207,000 new jobs were created each month. However, since July, the average number of new jobs added each month has been 148,000. Even excluding hurricane-related declines in October, that’s down from the first half of the year.

“November’s labor market data gave the Federal Open Market Committee (FOMC) the green light to ease policy again this month,” Samuel Tombs, chief economist at Pantheon Macroeconomics, wrote in a commentary.