The Federal Reserve is expected to hold its next policy meeting on December 9-10 to decide whether to cut the key federal funds rate for the third consecutive time. At that time, the Fed will face a difficult choice: whether to cut rates to boost the job market or to hold rates steady to curb inflation.
In addition, the Federal Reserve may have a third option—to postpone the interest rate meeting originally scheduled for December 9-10 .
Currently, the lack of key economic data due to the government shutdown has left the Federal Reserve without a core basis for its decisions, thus plunging it into a "data fog" dilemma.
The U.S. Bureau of Labor Statistics announced last week that the November jobs report, originally scheduled for release on December 5, will be postponed to December 16. The report will include business survey data collected by the agency in October.
This means that key employment data will be released after the Federal Reserve's decision.
Federal Reserve Chairman Jerome Powell and other members of the Federal Open Market Committee have previously stated that the data disruptions caused by the government shutdown have made it more difficult for them to adjust monetary policy to stabilize inflation and employment. This has led Wall Street to speculate whether the Fed will choose to postpone its December meeting by a week to await the key jobs report to be released on December 16.
UBS recently pointed out that the timing of the Federal Reserve's meeting next month faces an awkward situation: its December FOMC meeting will be held before the release of two key employment reports, which are precisely the core data that will determine whether to cut interest rates.
The bank pointed out that, historically, adjusting the meeting time is not impossible ; in 1971 and 1974, the Federal Reserve postponed its meetings due to special circumstances. From a regulatory perspective, the Federal Reserve Act only requires the FOMC to hold at least four meetings annually, without imposing rigid regulations on date adjustments.
UBS points out that historically, a single jobs report has been enough to change the direction of monetary policy, but this time the Federal Reserve faces the risk of losing two reports. If the meeting is indeed postponed, it will increase policy uncertainty but may improve the quality of decision-making.
"The Chairman (Powell) and other members stated that policymaking in the absence of official data is like 'walking in a fog.' If the FOMC insists on its August 2024 meeting schedule even though it knows key data will be released in a week, then this 'fog' becomes a deliberate choice," UBS researchers wrote in a report.
According to CME's "FedWatch," the probability of the Federal Reserve cutting interest rates by 25 basis points in December is currently 82.9% (compared to 69.4% yesterday), while the probability of keeping interest rates unchanged is 17.1%.
Despite the dovish remarks made last Friday by the Federal Reserve's third-in-command, the president of the New York Fed, which sharply increased expectations for a December rate cut, there is still significant disagreement within the Fed and on Wall Street regarding the policy outlook for December.
The core question facing policymakers is: is the greater risk to the U.S. economy a massive layoff or soaring inflation? Recent economic data has raised concerns about both rising prices and a slowing job market—both issues largely stemming from the impact of tariff policies.
In a commentary, Bob Schwartz, a senior economist at Oxford Economics, wrote: "Given the lack of concrete data from October or November, the December meeting's decisions may rely more on 'market sentiment' than on empirical evidence."
(Article source: CLS)
