Non-farm data triggers a significant cooling of rate cut expectations. Nomura: Powell's significant influence will reduce the magnitude of future rate cuts

According to the financial news app Zhitong Finance, due to the non-farm payroll data released on Friday far exceeding expectations, the market has basically ruled out the possibility of a further 50 basis point rate cut. Economists have expressed their views. Nomura Securities International analyst Aichi Aemiya stated that the Federal Reserve may reduce the rate cut to 25 basis points at the policy meetings in November and December. This senior economist mentioned that the Federal Reserve is currently not considering another 50 basis point rate cut. He made the above comments on September 27 and October 1 before the strong employment report was released in September.

Aemiya stated that Federal Reserve Chairman Powell also shows "significant influence in the decision-making process of the Federal Open Market Committee (FOMC)." He said that Powell's speech at the end of August in Jackson Hole was relatively dovish, and subsequently the FOMC further cut interest rates by 50 basis points at the September meeting, "Powell's views dominated the committee."

At the National Business Economics Association annual meeting on Monday, Powell emphasized that the overall U.S. economy is relatively stable and stated, "This is not a committee that rushes to cut rates."

Amemiya believes that Powell's influence is growing, and his less aggressive stance on further rate cuts is the reason Amemiya predicts the Federal Reserve will cut rates by 25 basis points in November and December.

On Friday, the non-farm payroll report for the previous month in the United States was released, exceeding all economists' expectations, and the three major U.S. stock indexes surged, with the Dow hitting a new record high. "The American inflation whistle-blower," former Treasury Secretary Summers, stated that in hindsight, the Federal Reserve's 50 basis point rate cut in September was a mistake, but this will not have "serious consequences." The latest U.S. September non-farm payroll report confirms that we are in a "high neutral interest rate environment," a period where monetary policy needs to be cautious about rate cuts.

In addition, Amemiya predicts the future path of policy rates, stating, "Although this depends on the upcoming data, the Federal Reserve will skip the rate cut in January and instead conduct quarterly rate cuts in 2025. Therefore, after the rate cut in December, the next rate cut is expected to be in March."

Amemiya believes that the decision on the rate cut in September between 25 and 50 basis points was very unusual, with a lot of back and forth until the final decision was made. Amemiya stated that the pre-meeting communication process of the Federal Reserve was "a mess." The Federal Reserve declined to comment.

The analyst said, "Before the 'quiet period' of the September meeting, all participants of the FOMC did not clearly indicate a 50 basis point rate cut, including Federal Reserve Governor Waller, who spoke before the quiet period."

The next FOMC meeting will be held on November 6th and 7th. During the next "quiet period," the U.S. October employment report will be released on November 1st, and the U.S. presidential and congressional elections will also take place on November 5th