CB Views: November 2024 FOMC Preview

  • Nov 06, 2024

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…