CB Views: November 2024 FOMC Preview

Sticking to 2 more cuts in 2024 (outlook uncertain beyond that)

By George Goncalves, Jessica Guo, Jonathan Wong
Nov 06, 2024

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Sticking to 2 more cuts in 2024 (outlook uncertain beyond that)

Fed Views

Sticking to 2 more cuts in ‘24 (outlook uncertain beyond that). Fed to do a neutral 25bp cut in November and rethink path post December.
Soft landings are rare when neutral rate uncertainty is high. Yet, the Fed will likely slow its rate cut pace to every other meeting in 2025.

Macro Backdrop

K-shaped economy is at risk of further deterioration in the transition to a new government, while inflation takes a backseat, for now.
Election uncertainty fading helps, but it is too soon to say the coast is clear and that labor hoarding pre-event doesn’t end up as layoffs.

Market Impact

FCI is easy but rates have repriced up. We still believe that rate levels matter in a high leveraged economy, regardless of election outcome.
Risk assets are priced to perfection and to a Trump economy. If rates remain high, it may impact econ activity during lame duck period

Scenario	Probability	Assessment
Dovish Cut (-25bp)	20%	Fed takes a “wait and see” approach and suggests won’t fully adjust forecasts until next administration policy clear Thus commits to the SEP dots for 2024, signals one more cut Mentions QT will likely end earlier than market expectations (given that RRP levels are approaching low levels lately) Market Implication: Unless very dovish, minor steepening
*Neutral Cut (-25bp)* *Base-Case*	70%	Post a weak NFP report, FOMC doesn’t want to signal that it’s shifting its policy stance on rates after having just cut 50bps States the election price action is not driving their views Given the cut had been priced-in, delivers on it and moves on Market Implication: Consolidation and no major market move
*Hawkish Cut (-25bp)*	10%	Powell does not signal the SEP dots serve as the path ahead However, reiterates the Fed remains data dependent and that if financial conditions continue to ease, they might slow cuts Market Implication: Bear flattening, minor risk asset sell-off

Please see the link for the full write-up with charts and scenarios…

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