Jobs Report Should Not Rule Out 50-Basis Point Fed Cut in November

The nonfarm payrolls report released on Friday should not completely rule out the possibility of a significant interest rate cut by the Federal Reserve at its November meeting, even though some traders have recently reduced their expectations for such a reduction, according to analysts from Bank of America.

The analysts believe that the data should keep market expectations fairly balanced between a 25 and a 50 basis point cut. In their client note, they forecast that the U.S. economy added 150,000 jobs in September, with the unemployment rate anticipated to remain steady at 4.2%.

They noted that the Federal Reserve would likely view these numbers as consistent with their predictions. Their expectation is that the market may slightly lower its anticipation for a cut in November while still allowing for the possibility of a 50 basis point reduction.

While market participants are expected to pay close attention to labor market data leading up to the Fed’s upcoming meeting, the analysts emphasized that decreasing inflation figures could also pave the way for a more substantial rate cut.

Last month, the Fed reduced interest rates by half a percentage point, a decision that officials later attributed to a need to enhance labor demand in a period of easing price pressures.

On Monday, Federal Reserve Chair Jerome Powell indicated that the central bank is likely to favor more conventional quarter-point cuts in the future, but he also cautioned that the trajectory for interest rates is not predetermined. He mentioned that the Federal Open Market Committee is not in a rush to implement rapid rate cuts.

Powell defended last month’s larger cut as a sign of the FOMC’s increasing confidence that, with a necessary adjustment to their policy, the labor market’s strength can be sustained amidst moderate economic growth and a consistent descent in inflation to 2%.

In a surprising turn, U.S. job openings saw a slight rise in August, suggesting some resilience in the labor demand during the third quarter. The Job Openings and Labor Turnover Survey revealed that available positions increased to 8.04 million at the end of August, up from a revised figure of 7.71 million in July. Economists had forecast a slight decline to 7.64 million in the report released on Tuesday.

The July figure had dropped to its lowest level in three and a half years, which was viewed as a possible indicator of a cooling job market, albeit in a measured manner.