December Fed Rate-Cut Odds Rise Above 50% on Weak Jobs Reports

The odds of a December Fed rate cut are back above 50% following the release of two significant jobs reports today, which show that the labor market is still weakening. UBS economists also predict the Fed will lower rates at next month’s FOMC meeting, which is a positive for Bitcoin and the broader crypto market.

December Fed Rate Cut Odds Now Back Above 50%

CME FedWatch data show that the odds of a 25 basis points (bps) rate cut at the December FOMC meeting are now back over 50%. Meanwhile, the odds of interest rates remaining unchanged have dropped to 49.6%.

CoinGape reported last week that the odds of a 25 bps Fed rate cut had fallen to as low as 44%, as Fed officials raised concerns about rising inflation. Fed President Jeff Schmid warned that further cuts would have a lasting impact on inflation and would do little to help the weakening labor market.

However, the release of the weekly jobless claims and ADP job report has raised optimism of another cut at the December FOMC meeting. Department of Labor data shows that U.S. jobless claims rose to 232,000 in the week that ended October 18, above the expected 223,000.

Furthermore, an ADP report revealed that private employers shed an average of 2,500 jobs a week throughout October, signaling a slowdown in job growth. With the weak labor market persisting, this could influence the FOMC to make another Fed rate cut next month.

UBS economists also predict that the Fed will lower rates next month. They stated that, despite mixed views among Fed officials, the incoming data won’t be enough to halt the growing support for a third rate cut this year. The economists further noted that soft hiring and rising layoffs highlight continued economic weaknesses.

Meanwhile, UBS expects the FOMC minutes to show divisions among the Fed officials. Fed Presidents Raphael Bostic and Jeff Schmid have indicated that they aren’t in support of another cut, while Fed Governor Stephen Miran has advocated for a 50 bps cut.

Fed’s Barkin Comments On Dual Mandate

In remarks at an event in Winchester, Richmond Fed President Tom Barkin said the labor market may be weaker than the numbers suggest. He further highlighted the drop in job growth and postings, which strengthens the case for another Fed rate cut.

Meanwhile, Barkin noted that inflation remains above their 2% target and is somewhat elevated. However, his findings suggest that inflation is unlikely to rise much despite concerns from some other Fed officials.

The Fed president didn’t say whether he would support another rate cut at the December meeting, noting that there is a lot to learn between now and then. However, it is worth mentioning that Barkin isn’t on the FOMC this year and doesn’t have a vote on monetary policy decisions.