The chance of a December cut is down to 65% for December. Stocks are mixed and the USD is higher after the Fed Chair comments.
Looking at yields:
- 2 year yields 3.612%, +11.8 basis points
- 5 year yield 3.718%, +10.5 basis points
- 10 year yield 4.073% +8.9 basis points
- 30 year yield 4.610% +6.3 basis points
In the US stock market:
- Dow -0.27%
- S&P -0.10%
- Nasdaq +0.39%
- Russell 2000 -1.25%
Below is a summary of headline comments by topics:
🏦 Monetary Policy & Interest Rates
Different views about how to proceed at December meeting
Strongly differing views at meeting about how to proceed
Another cut in December is far from assured
December cut is not for sure, far from it
Further reduction at December not a foregone conclusion
We haven’t made a decision about December
We had strongly differing views today
Repeats we haven’t made a decision about December, saying this in addition to the usual
If not getting info, and economy looks unchanged, there will be an argument to slow down on cuts
There’s a sense from some, let’s pause
There’s a sense from others, let’s go ahead (on cuts)
Some people on committee feel it’s time to take a step back
There is a growing chorus of feeling we should maybe wait a cycle
For today’s rate cut, a strong, solid vote
Today’s cut was risk management
Going forward is a different thing
Must take a balanced approach
No risk-free path
Risks to inflation are to the upside, to employment are to downside; challenging balance
Tension between two goals, strong views across the committee
Everyone on committee deeply committed to achieving goals; differences on how to do that
You would expect there would be a range of views on what to do, and the speed we should do it at — and that’s what we have
I think so far we’ve done the right thing
If there is a high level of uncertainty, that could be an argument for caution on moving
If there were a significant change in the economy, I think we’d pick that up
Difficult for a central bank to have goals in tension
We’ve moved 150 basis points, now in range where many estimates of neutral rate live
We’re 150 basis points closer to neutral than we were a year ago
📉 Inflation & Prices
Inflation remains somewhat elevated relative to goal
Estimate total PCE and core PCE rose 2.8%
Disinflation in services continues
Disinflation continuing for services
Most measures of long-term inflation expectations consistent with goal
Higher tariffs pushing up some goods prices
Reasonable base case is tariff effects on inflation will be short-lived
Risk of more persistent inflation needs to be managed
Obligation is to ensure inflation does not become an ongoing problem
Directionally CPI was a little softer than expected
Goods prices moving inflation up, but good news that housing services inflation coming down
Don’t take a lot of signal on non-market services
Inflation away from tariffs is not so far from 2% goal
Maybe 5 or 6 tenths
Don’t see tight labor market or inflation expectations moving, which could make inflation rise persistent
We’re not just assuming it will be one-time inflation from tariffs
Monitoring closely
Policy modestly restrictive
Absolutely committed to returning inflation to 2%
That’s a credible commitment
It would not be appropriate to assume away the inflation issue
At the same time, risk of higher inflation has declined since April
Inflation is still very much making people unhappy
Will take some time for that to wear off, for real incomes to rise
Could get 2 or 3 or 4 more tenths of inflation from tariffs, but should be one-time
💼 Labor Market & Employment
Job availability, hiring difficulty continue to decline
Not seeing an uptick in claims or downtick in openings; suggests gradual cooling and gives some comfort
We do get some jobs data to get a picture of the labor market
State-level claims data sending signal of things being the same
Labor market is not clearly declining quickly
A stronger labor market is the best thing we can do for people
Job creation, if you adjust for overcounting by BLS, is pretty close to zero
Decline in job creation is mostly a function in change in supply
Job creation is very low
Job finding rate for those unemployed is very low
We do not see weakness in job market accelerating
That should help labor market from getting worse
Not seeing any significant deterioration in job openings or claims
Watching layoffs, healthcare price rise very carefully
Layoff announcements not in initial claims data yet
Much of the time the layoffs are about AI; yes, it could have implications for job creation
Ordinarily labor market is better indicator than spending; in this case it’s a more downbeat reading
If see data showing labor market is stabilizing or strengthening, it would play into policy decision
We can’t address both employment and inflation risks with our one tool
💰 Balance Sheet, Liquidity & Financial Conditions
December will enter next balance sheet phase, hold steady for a time
Reinvestment strategy will move weighted average maturity closer to stock of outstanding securities
Clear assessment we are only slightly above ample in reserves
Not a lot of benefit to continue shrinking balance sheet
Not a lot of benefit in holding on to get the last few dollars of QT
Support on committee to announce December 1 freeze of balance sheet size
December 1 date gives markets a little time to adapt
At a certain point, will want reserves to start gradually growing
We’ll be adding reserves at a certain point
Portfolio has more duration than outstanding Treasury stock
Want to move balance sheet to shorter duration, have not decided endpoint
Tightening of money market in recent three weeks
Don’t see much leverage in banking and financial system
Don’t see too much leverage in banking and financial system
Rising defaults where we see them don’t signal a broader credit issue
🧠 AI, Data, and Economic Structure
Data center investments and AI is a big deal
Spending on data centers isn’t especially interest-rate sensitive
Don’t think interest rates are an important part of the data center story
Investment in AI has been a clear source of growth for the economy
AI is a source of growth, but consumer spending as well, defying forecasts
Then, they were ideas, not companies; was a clear bubble; this time, they have earnings and profits
There was a clear bubble back then
This is different from the dot-com era
We have to be careful
Don’t think we’ll have a very granular understanding of the economy while shutdown is on
On data, this is temporary
Could imagine that lack of data affects December decision
Driving in the fog, you could slow down
There is a possibility there may be a case for more caution in absence of data
Not committing that would need to slow down, but you could imagine it
🧾 Economic Outlook & Consumer Spending
Overall it’s a good economic picture
It’s a mixed picture
Not an overly troubling picture
Seeing some softening; economy is growing about 1.6% this year, slower than last year
In aggregate, households are in good shape financially
Consumer spending has been supportive; consumer spending and that’s a big, big chunk of what’s going on
Consumer spending is a much bigger part of economy than AI
Many consumer companies say there is a bifurcated economy
We think there is something there, as far as a ‘K’-shaped economy
Rates are not accommodative but meaningfully less tight than before
Difficult for a central bank to have goals in tension
Balance of risks has shifted
Remain well positioned
Well-positioned to respond in a timely way to economic developments
Face two-sided risks
🧩 Committee Sentiment & Decision Process
Policymakers have different forecasts and different risk tolerance
People have different forecasts, different risk tolerances
Everyone on committee deeply committed to achieving goals; differences on how to do that
You would expect there would be a range of views on what to do, and the speed we should do it at — and that’s what we have
I think so far we’ve done the right thing
