Fed’s path forward remains uncertain…

With several Fed governor’s sharing their uncertainty about the need for an additional year-end rate cut, and along with Chair Powell’s similar comments recently, the likelihood of a mid-December rate cut now stands at 75%. Last week the Fed’s preferred inflation gauge, the Personal Consumption Expenditure, was released with the October figures meeting expectations. The index increased 0.2% month over month and had an annual increase of 2.3%. Though this rate is close to the Fed’s goal of 2%, the reading was a slight increase from the previous month.

A further threat to the Fed’s continued rate cuts is President-elect Trump’s proposed policy changes on tariffs. Last week, he announced an expanded list of countries that may be levied a 25% tariff, including Canada and Mexico. The two countries are long time trading partners of America and have had few, if any tariffs, levied on them in recent years. Adding fuel to the fire, the incoming president announced a potential 100% tariff against countries that participate in the intergovernmental organization known as BRICS. The move was taken as these countries have a stated intention of moving away from the U.S. dollar as the world’s reserve currency. The implementation of either, much less both, of these tariff actions would likely spur inflation while also strengthening the dollar.

Meanwhile, this morning the Department of Labor released its JOLTS report, the first of two labor reports due out this week. Both data sets will be keenly analyzed by Fed Chair Powell and his staff before the bank’s final meeting of the year occurs in two weeks. The JOLTS report had the jobs figure beating expectations and was an increase from last month’s numbers. To further the positive narrative, layoffs decreased, but in turn hiring also declined. The labor market has been slowly cooling since 2022, but today’s report shows the labor market to be resilient and should not be a cause for concern with this fickle economy.