AUS
NZ
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USA
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Highlights:
- US job surge: September's non-farm payrolls far exceeded expectations, reducing concerns over a potential recession.
- Lower interest rate cut expectations: Markets now see a significantly lower chance of a 50 basis point cut in November.
- Economist outlook: Smaller, 25 basis point cuts are now forecast for the remainder of 2024.
Expectations for a sharp cut to US base interest rates have been revised downward after the US economy added significantly more jobs than anticipated in September. According to the latest figures from the US Bureau of Labor Statistics, 254,000 non-farm jobs were added, far exceeding the forecasted 147,000. This strong performance has lessened concerns of a looming recession and weakened the case for aggressive monetary policy easing by the Federal Reserve in the near term.
Stronger-than-expected Labour Market Performance
The September non-farm payroll data not only surpassed expectations in job creation but also showed a drop in the unemployment rate, which declined to 4.1% from the expected 4.2%. These figures point to a resilient labour market, further reducing the likelihood of deep rate cuts by the Fed in its upcoming meetings.
Rate Cut Expectations Sharply Reduced
Previously, markets had anticipated a potential 50 basis point cut to the base interest rate at the Federal Reserve’s next meeting in November, following the 50 basis point reduction in September. However, in light of the strong job numbers, the probability of such a cut has plummeted. Money markets, which had priced in a 54% chance of another significant cut, now see only a 6% chance of this happening.
Economists Adjust Projections
Economists, including those from Capital Economics, have weighed in on the shifting outlook. Paul Ashworth, an economist with Capital Economics, stated, “Any hopes of a 50 basis point cut are long gone,” adding that the robust labour market data has sparked a debate over whether the Federal Reserve should consider loosening monetary policy at all. Capital Economics now forecasts that the Fed may opt for smaller 25 basis point cuts in its remaining 2024 meetings, bringing the benchmark interest rate down to a range of 3% to 3.25% by the end of the year.
