Fed Chair Jerome Powell surprised some investors during Wednesday’s Federal Open Market Committee (FOMC) meeting, saying that a rate cut in December isn’t a “foregone conclusion.” Powell added that Fed officials have varying forecasts on inflation and labor data that will guide the central bank’s upcoming decision.
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Following Powell’s comments, the odds of a 25 bps rate cut in December plunged to as low as 66.56% compared to a high of 98.78% on October 20. The odds have since slightly recovered, sitting at 70.8%.
December Rate Cut Hangs in the Balance
DoubleLine Capital founder Jeffrey Gundlach believes that a lack of federal economic data due to the government shutdown places the odds of another rate cut by year-end at 50-50. The shutdown is currently in its 30th day, inching closer to the record of 35 days set in 2018-2019.
“It sounds to me like if we don’t have any more data, I think that we need to price out, to a certain extent, what was an assumption by the market that there was going to be—almost with a 90%-plus certainty—a cut in December,” Gundlach told CNBC.
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