Fed’s ‘dot plot’ Indicates No Urgency for Another 50bps Rate Cut, but Jobs Data Influences Decisions

The Federal Reserve’s significant rate cut in September does not indicate a trend for the future, as recent insights from the Fed’s “dot plot” indicate that members are not eager to implement another 50 basis point cut unless there is an unexpected change in the labor market.

According to economists at Wells Fargo, “Based on what we know now, we believe the FOMC is likely shifting towards a 25 basis point pace moving forward,” highlighting the Fed’s updated summary of economic projections.

On September 18, the Fed enacted a 50 basis point rate cut and hinted at two additional 25 basis point cuts this year, alongside a potential one percentage point cut next year.

Fed Governor Michelle Bowman was the only member opposed to the larger cut, advocating for a smaller 25 basis point reduction during the September meeting. However, the dot plot revealed that “a significant portion of the Committee is not rushing to make 50 basis point cuts the default approach,” the Wells Fargo economists noted.

Wells Fargo suggests that the Fed’s substantial rate cut was intended to initiate policy easing proactively, as many FOMC members did not want to witness any further deterioration in the labor market.

Nevertheless, the possibility of another substantial 50 basis point cut might emerge if the upcoming labor market indicators show unexpected weakness.

The next two employment reports, scheduled for October 4 and November 1, will be crucial in shaping the monetary policy outlook.

Wells Fargo comments, “An unexpected slowdown in payroll growth or a larger-than-anticipated increase in the unemployment rate could lead us to anticipate another 50 basis point adjustment at the November 7 FOMC meeting.”