The Federal Reserve may not cut interest rates in November? Moody's refutes!

The retail sales data for September, released last night, exceeded expectations, while initial claims data came in below expectations, and Wall Street is digesting the strong performance of the U.S. economy.

Kathy Bostjancic, Senior Vice President and Chief Economist at Nationwide, pointed out that the September retail sales data provided "continuing signs" that consumer spending remains strong.

She emphasized that this marks a strong performance for the U.S. economy in the third quarter and provides good momentum for economic growth in the fourth quarter, stating, "This indicates that consumers continue to drive economic growth, which is positive for the overall economy." She stressed that consumer spending is a key driver of economic growth, and this data supports the view that the U.S. economy is not heading for a recession.

Bostjancic said, "I believe that economic growth in September continued to be unexpectedly strong, which is a good problem that the Federal Reserve needs to address."

She added that this report may prompt the Fed to reconsider its stance on interest rates in November. "I think they still have strong reasons to cut rates in November. They could reduce the rate cut from 50 basis points to 25 basis points, but a rate cut is not set in stone."

However, Mark Zandi, Chief Economist at Moody's Analytics, does not fully agree, as he believes there are two compelling reasons for the Fed to continue cutting rates.

Zandi stated, "The real GDP growth in the U.S. is around 3%, which is a very good economic performance, especially considering faster growth on the supply side of the economy. We have seen significant growth in labor and productivity, so we can grow at this pace without generating inflationary pressures."

He believes that if the Fed continues to lower interest rates, the U.S. economy will continue on this path. While some argue that given the positive economic data, the Fed should keep rates unchanged, Zandi presents two reasons why the Fed should continue its rate-cutting path.

First, he explained, "Fed officials have achieved their dual mandate, their task is to achieve full employment and price stability, with a 4.1% unemployment rate indicating full employment; they have also achieved their low and stable inflation target, so there is no reason to keep rates far above equilibrium levels."

Zandi's second point is that while the U.S. unemployment rate is currently at 4.1%, the indicator has been slowly rising.

He said, "The economy's potential growth rate is higher than the actual growth rate, with our GDP growth rate now at 3%, but the economy's potential growth rate is close to 4%. That's why the unemployment rate has been slowly rising. If the rise in unemployment is due to layoffs, that would be a real problem; if the rise in unemployment is because we have more labor supply, that is also a problem."

He added, "They do not want the unemployment rate to rise, so Fed officials should normalize rates."