A note from Wells Fargo Chief Economist Jay Bryson on Monday suggests that, given U.S. economic growth showing resiliency, the Federal Reserve is expected to slow down the rate of interest-rate reductions at its next meeting on November 7. From the 50-basis-point drop in September, the central bank is likely to lower rates by 25 basis points, therefore reversing itself.
Bryson noted excellent data on nonfarm payrolls, retail sales, and consumer prices, so noting "since the Committee last met, U.S. economic activity has generally surprised to the upside." Based on fed funds futures showing a 98.9% probability of a 25-bps cut to lower the benchmark rate to 4.50%-4.75%, using the CME FedWatch tool, his call corresponds with market expectations.
Bryson pointed out that the statements of legislators and the latest dot plot from the Federal Open Market Committee (FOMC) offer insufficient justification for another forceful reduction. He believes the risk of no rate drop at all is higher than the 50-bps repeat of September. Bryson also highlighted funding constraints influencing liquidity, since the secured overnight financing rate exceeded the Fed's goal range. Although the continuous quantitative tightening (QT) program began in June 2022 is not expected to undergo any adjustments, Bryson expects a more thorough discussion, maybe planned for Q1 2025.
