The Federal Reserve is poised to implement its third interest rate cut of the year this Wednesday. Analysts widely anticipate a modest reduction of 0.25%, aligning with the cuts made earlier in the year. However, the decision comes amid a notable absence of recent economic data due to a prolonged government shutdown.
Economic Context
The Bureau of Labor Statistics has issued the September jobs report, but the October report was scrapped, and the November report is still pending. This delay contributes to uncertainty as the market anticipates the November jobs report, scheduled for December 16. Significant economic indicators, such as the consumer price index for October, have also been canceled.
Labor Market Indicators
Alternative data sources reveal a troubling trend in the labor market. The ADP’s latest monthly report indicated a significant job loss, with small businesses shedding approximately 120,000 jobs in November. Overall, the nation experienced a net loss of 32,000 jobs during the same period.
- ADP Job Loss Data: 120,000 jobs lost in small businesses.
- National Job Loss: Net decrease of 32,000 jobs.
Inflation and Consumer Spending
One of the few economic measures released amid the shutdown was the personal consumption expenditures (PCE) index, favored by the Fed. It revealed a year-over-year inflation rate of 2.8% in September, a slight increase from previous months. Consumer spending appeared stagnant, remaining unchanged through September, with only a slight 0.2% rise when excluding volatile food and energy prices.
Job Openings and Labor Turnover Survey
The Job Openings and Labor Turnover Survey (JOLTS) recently published more concerning data. The hiring rate fell to 3.2%, while the quit rate dropped to a historic low of 1.8%. Analysts from Citigroup emphasized that the upcoming October jobs report could reflect a decline of around 65,000 workers due to buyout offers extended to federal employees in the spring.
Impact of Tariffs
The ongoing impact of tariffs imposed by President Donald Trump has also introduced uncertainties for businesses. The Supreme Court is currently reviewing the legality of these tariffs, which could be adjusted based on their ruling. Wells Fargo’s CEO, Charlie Scharf, noted that while businesses are encouraged by potential long-term effects of tariffs, they are currently facing short-term pressures that could affect hiring and investment.
- Wells Fargo Insights: Tariffs affecting business hiring and investments.
- Position in Banking: Fourth-largest bank in the U.S. by deposits.
Consumer Resilience
Perspectives on consumer behavior were shared by JPMorgan Chase’s executive Marianne Lake during a recent conference. She described the current environment as “fragile,” suggesting that while many consumers and small businesses appear resilient, they possess less capacity to absorb further economic stress.
This delicate balance between supporting growth and managing costs will significantly influence the Fed’s decisions as it navigates through this period of uncertainty in the economy.
