Bruce Kasman is a veteran of many Federal Reserve monetary policy campaigns over the years, having started his career at the New York Fed and the last 30 years at JPMorgan where he is Chief Economist and Global Head of Economic Research. So as the world geared up for what many expected to be another weak U.S. jobs report fuelling some to bet on many on increasing odds of a second 50bps Fed rate in November, I was eager to hear what he would have to say once the September jobs report was finally in hand
When I ask him what the hotter-than-expected payrolls gain of 254,000, alongside a drop in the unemployment rate to 4.1% and an acceleration mean for the Fed’s next rate decision at its November meeting - another 50bps cut, a less aggressive 25bps drop, or even a pause, he does not hesitate.
“I think it definitely almost takes out the possibility that the fed would consider a large rate cut,” Bruce says.
He sees the Fed having shifted its perception of risk on few fronts, the most important one being officials seeing cooling labor demand that could into recession. alongside good inflation news.
Bruce says what the jobs report does “most centrally take out some of that risk on the idea that businesses might be reducing hiring in a way that's signaling behavior.”
At the same time he sees increasing wages affecting the Fed’s rate cut outlook now too. “A significant rise in wages this month gives the fed some reasons to think whether or not they're getting that much easing in pressures. As they're trying to connect that to what we've seen in the inflation data this year.”
Could the Fed consider a pause in rate cuts at the November meeting?
”It’s certainly possible,” Bruce says. The has mapped out 100 bps of rate cuts this year and “they gave us an installment with a 50bps cut in the first step and told us they will do 25 at the next two meetings for the year.”
”I think, with the number you get today we have to remember we've got a Cpi report next week. We also get a another payroll report just before the November Fomc meeting, and if those numbers come out firm,” he says. “There's a debate that's gonna happen at that meeting: Do we (at the Fed)n want to follow through on that guidance of that 100 basis point cumulative move over 3 meetings, or do we step back from it? I I think it will depend on the data. I don't think we've decided what November is gonna bring. I think it's still more likely than not at this moment will see the Fed go 25 bps at the November meeting.”
Bruce notes that the October jobs report, which could be distorted by the recent hurricanes, “come right before the Fed meets.” He doesn’t think a weak employment report could push the to do a 50bps rate cut.
What if the Fed gets another upside surprise on jobs?, could this lead the Fed to take a pass on a November rate cut?
”If it’s a very strong report it could open a debate at the (Federal Open Market) Committee for a number of people who say, ‘Let’s wait and stay on a once a quarter (rate cut) pace which would mean going in September and then wait (and cut rates) again in December.”
We covered a lot more in our interview. So dive in and see and here what he has to say.
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