Fed’s ‘dot plot’ Indicates No Urgency for Additional 50bps Cut, While Jobs Data Remains Influential

The recent decision by the Federal Reserve to implement a significant rate cut in September does not indicate a trend for future cuts, as the latest insights from the Fed’s dot plot suggest that members are not inclined to pursue another 50 basis point reduction unless there is an unforeseen shift in the labor market.

Economists at Wells Fargo noted that, based on current information, the Federal Open Market Committee (FOMC) seems to prefer adjusting to a more gradual pace of 25 basis points moving forward, referencing the updated summary of economic projections.

On September 18, the Fed approved a 50 basis point cut and hinted at the possibility of two additional 25 basis point cuts this year, along with a potential full percentage point reduction next year.

Fed Governor Michelle Bowman was the only member to disagree with the larger cut, advocating for a smaller 25 basis point reduction during the September meeting. The dot plot indicated, however, that a significant portion of the committee is not in a rush to adopt 50 basis point cuts as the standard approach.

Wells Fargo suggested that the substantial rate cut was intended to initiate policy easing, as most FOMC members expressed a desire to avoid any further decline in the labor market.

Nevertheless, the prospect of another large 50 basis point cut could be reconsidered if unexpected weakening signals emerge from the labor market. The upcoming employment reports scheduled for October 4 and November 1 are particularly crucial for shaping the future monetary policy landscape.

According to Wells Fargo, an unexpected slowdown in job growth or a larger-than-anticipated increase in the unemployment rate could lead them to forecast another 50 basis point move at the FOMC meeting on November 7.