Be cautious! Strong non-farm data may keep the Federal Reserve "on hold"

JIN10
2024.10.29 03:52
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Top economist Jeremy Siegel warned that the Federal Reserve may unexpectedly keep interest rates unchanged at the upcoming meeting next week, despite the market generally expecting a 25 basis point rate cut. He pointed out that if the non-farm payroll data released on Friday is strong, it may change the expectations for a rate cut. Siegel expects the Fed to cut rates three to four more times in the easing cycle, but long-term rates may remain at relatively high levels. The market expects third-quarter GDP growth to be 3.3%

Top economist Jeremy Siegel warned that the Fed's meeting next week may unexpectedly keep interest rates unchanged.

Wharton School finance professor Jeremy Siegel stated that while investors are almost certain that the Fed will cut rates by 25 basis points in November, if a strong non-farm payrolls report is released on Friday, these expectations could be completely overturned.

Economists expect that the non-farm data to be released on Friday will show an addition of 110,000 jobs in the US in October. If this data significantly exceeds expectations, the market may further adjust its expectations for the extent of the Fed rate cut.

Siegel said in an interview last Friday, "If we see continued strength in the labor market data for October, many Fed officials will say, maybe we should pause at this point."

It is worth noting that in August, Siegel called for an emergency rate cut of 75 basis points by the Fed.

Fed officials implemented a large 50 basis point rate cut at the September meeting. Fed Governor Bowman was the only dissenting voter at that time. Since then, the unexpectedly strong September non-farm payrolls data has led many Fed officials to call for "more caution", all pointing to a strong job market and economic growth.

Siegel expects that the Fed will cut rates three to four more times in its easing cycle. However, he noted that in the long run, rates may remain at relatively high levels. He added that US stocks look "strong" and the US economy still shows resilience.

On Wednesday, the US will release third-quarter GDP data, with market expectations for the data to show a 3.3% growth rate in the US economy from July to September.

Despite a strong economic backdrop, most investors still expect the Fed to continue cutting rates in the coming months. According to the Chicago Mercantile Exchange FedWatch tool, the market expects the Fed to cut rates twice for the remainder of this year, each time by 25 basis points, and the likelihood of a 100 basis point cut in the federal funds rate by May next year is around 40%