Fed Expected to Pause or Cut Rates by 25 Basis Points in November, According to AlpineMacro

Alpine Macro analysts recently indicated that the Federal Reserve may either pause or implement a modest cut of 25 basis points at its upcoming meeting in November, following the release of the U.S. Consumer Price Index (CPI) data for September.

The futures market anticipates a total of 50 basis points in cuts by the end of 2024; however, Alpine Macro has noted that the justification for such significant cuts is weakening.

The CPI data for September revealed a headline inflation rate of 2.4% year-on-year, marking a slight decrease from August’s 2.5%. Yet, Alpine Macro emphasized that the underlying data does not support the notion of rapid disinflation.

They stated, “Inflation data is no longer falling rapidly—or even at all,” indicating that the Federal Reserve is unlikely to take aggressive action.

Reflecting on the Fed’s 50 basis point cut in September, the analysts pointed out that it was primarily motivated by a fear that inflation might fall short of the Fed’s target. They explained that at the time, the data indicated a rising risk of inflation undershooting expectations.

This perception led the bond market to see a need for a “recalibration” of rates. However, the analysts now argue that the inflation and growth data since September have weakened the case for further substantial rate cuts.

While the CPI figure seems benign at first glance, Alpine Macro cautioned that “the 12-month CPI reading does not tell the whole story.” Given the current economic landscape, they expect the Fed to take a more cautious approach going forward.

With downside risks to growth and employment having minimal influence on decisions, the analysts concluded that “another 50 basis point cut is off the table. The key question now is whether the Fed will implement a 25 basis point cut or refrain from cutting altogether.”