Investing.com — Chairman Powell is likely to signal that the pace of rate cuts may slow or accelerate, but on the back of recent data showing a slowing pace of inflation and slowing job growth. is unlikely to support a hawkish bet on a Fed pause, Citi analysts said. said in a memo.
“Instead, we think he will leave open the option of slowing or accelerating the pace of rate cuts at 2pm on Thursday,” said Citi analysts Andrew Hollenhorst and Veronica Clark. “It’s a relatively dovish message.”
The Fed is expected to cut rates by 25 basis points at the end of its two-day meeting on Thursday.
Recent market sentiment has tilted toward the expectation that the U.S. economy will not cool enough for the Fed to continue with its plan to lower interest rates to a neutral level. But Citi analysts say the latest data points in exactly the opposite direction.
In addition to weaker-than-expected October employment data that took into account the impact of hurricanes and strikes, core PCE inflation was nearing target and the employment cost index slowed to an annualized rate of 3.2%. It will not support a hawkish view. analysts said.
He also referred to comments made by Waller on October 14th, stating that “Fed officials had decided in advance to dismiss the weakness in the October jobs report, which would reduce the dovish nature of the response.” It will be eased,” he added.
Citi expects there to be little discussion of a 25 basis point rate cut at the November meeting. The decision to cut rates in December will depend on labor market data, with Citi predicting a further 50 basis points (bp) cut.
Analysts also pointed out that the FOMC meeting will be held immediately after the US presidential and congressional elections. They predict that when asked about the impact the election will have on Fed policy, Powell will stress that monetary policy responds to macroeconomic developments rather than new policy proposals.
Regarding balance sheet reduction, Citi analysts believe that Fed officials are not concerned about the slight increase in volatility in funding rates and believe they may be able to do so with confidence through 2025. There is.
“We also expect Chairman Powell to reflect that foreign exchange reserves are ‘more than adequate’ and that there are no near-term plans to reduce balance sheet reductions,” he added.
