Eddie Wu's Money Fund Weekly | Changing Winds? Multiple Fed Officials Support Gradual Rate Cuts? Another 'Nonfarm' Test This Week!
Issue 202445
Last week's PCE data and Fed Minutes release have increased expectations for a December rate cut. The market now prices in a 67.1% probability of a 25bps cut in December, up from last week.
On Tuesday (November 26), the Federal Reserve released minutes from its early November monetary policy meeting on its official website. The minutes revealed a shift in the Fed's stance, with "several" policymakers suddenly supporting more gradual rate cuts, and officials first discussing the possibility of pausing action when assessing policy risks. Veteran journalist Nick Timiraos, dubbed the "New Fed Whisperer," later wrote that the minutes suggest the Fed would be more cautious about cutting rates if progress on disinflation stalls. The same day, the U.S. Commerce Department reported that while the Fed's preferred inflation gauge met expectations, October's figure rebounded to 2.8% from September's 2.7%. This data supports Fed officials' more cautious stance on future rate cuts.
Despite the rise in October PCE inflation, traders increased bets on another Fed rate cut in December. According to CME FedWatch, the probability of a 25bps cut in December rose to 67.1%, up from last week.
This week will see a series of labor market data releases, including Friday's crucial November nonfarm payrolls report. Economists generally expect 195K new jobs with unemployment potentially rising to 4.2%. Multiple Fed officials including Chair Powell are also scheduled to speak.
Elsewhere, Eurozone inflation rose as expected from 2.0% to 2.3%, though latest PMI data missed forecasts, signaling cooling risks. Rate futures price in a ~20% chance of the ECB cutting by 50bps on December 12. On Wednesday (December 4), ECB President Lagarde will deliver opening remarks before the ECON committee, with investors eager for more rate cut clues.
✧Fed Moves & Data Releases
November 27, 2024
Fed's Goolsbee: Slowing Rate Cuts Makes Sense as Neutral Rate Nears
Chicago Fed President Austan Goolsbee said slowing the pace of rate cuts is reasonable as the Fed approaches neutral policy; Determining neutral vs restrictive levels requires assessing conditions, which takes time rather than weeks.
Fed Minutes: Multiple Officials Back "Gradual" Cuts, Some Float Pause
The minutes showed the group favoring gradual cuts due to neutral rate uncertainty grew from "some" to "several"; Nearly all saw balanced risks, some noted reduced downside risks to growth/labor, while multiple officials saw diminished overheating risks; Some suggested considering ON RRP as the floor.
U.S. Core PCE Rises 2.8% YoY in October, Edging Up
The core PCE index rose 0.3% MoM (flat) and 2.8% YoY (+0.1ppt), matching forecasts; Headline PCE gained 2.3% YoY and 0.2% MoM, both as expected.
U.S. Initial Jobless Claims Fall to 213K, Below Forecasts
Seasonally adjusted initial claims dropped 2K to 213K (vs 216K expected), though continuing claims rose 9K to 1.907M - the highest since November 2021.
November 26, 2024
Fed's Kashkari: December Cut Warrants Consideration
Minneapolis Fed President Neel Kashkari said another December cut is reasonable; U.S. economic resilience may signal structurally higher neutral rates.
Fed's Goolsbee: Rates Will Keep Declining
Goolsbee expects continued cuts toward neutral policy absent overheating evidence; Pace depends on conditions but "we're on the path down"; Neutral rate estimate near median 2.9%.
✧Other Central Bank Updates
November 30, 2024
BOJ's Ueda: Hike Nears, Wage Trends Key
Governor Kazuo Ueda said with inflation/economy on track, tightening approaches; Wage trends are pivotal; If core inflation stays near 2% by mid-to-late 2026, rates would near neutral; U.S. policy outlook has "big questions".
Eurozone Inflation Rises to 2.3% in November
Preliminary data showed services (+3.9%), food/alcohol/tobacco (+2.8%) and non-energy industrial goods (+0.7%) drove the increase, while energy fell 1.9%; Core inflation was 2.7%.
November 28, 2024
ECB's Villeroy: Door Open for Larger December Cut
François Villeroy de Galhau warned persistent weakness raises sub-target inflation risks; Rates could fall below neutral; All options should remain for December; Negative rates should stay in toolkit.
November 27, 2024
ECB's Schnabel Warns Against Over-Cutting
Isabel Schnabel said the ECB may be near neutral; No clear disinflation risks; Limited room for more cuts; Stagnation but no recession; Over-easing could waste policy space.
November 26, 2024
ECB's Rehn: December Cut Possible If Data Supports
Olli Rehn said cuts should continue if projections hold; Downward trend clear but pace data-dependent; Expects 2025 target hit.
ECB's de Guindos: Focus Shifts From Inflation to Growth
Luis de Guindos noted December forecasts will reflect fragile growth; Geopolitical risks and U.S. policy uncertainty may impact trade/fiscal policies; Implementing new EU governance frameworks is critical.
ECB's Makhlouf Open on Cut Speed
Gabriel Makhlouf said rates will fall but volatility/data require flexibility; Growing confidence in 2025 target but sticky services inflation warrants caution.
ECB's Nagel: No Rush to Cut
Joachim Nagel said approaching 2% may justify more cuts but decisions shouldn't be rushed; Wage pressure declines should gradually ease services inflation.
ECB's Centeno Favors Steady Cuts to 2%
Mário Centeno stressed normalization must start now; Prefers gradual moves to 2%; Europe must avoid undershooting; Accumulating risks from U.S. tariffs.
November 25, 2024
BOE's Dingra Warns of UK Deflation Risks
Swati Dhingra noted symmetric CPI declines show UK no longer an inflation outlier; Deflation risks loom amid unpredictable labor data.
BOE's Lombardelli Urges Caution on Cuts
Sarah Breeden supported gradual easing but said declaring victory premature; Wage/service price outlooks remain unclear.
ECB's Kazāks: Weak Economy Demands December Cut
Mārtiņš Kazāks insisted another December cut is necessary given Europe's economic conditions.
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