Fed’s ‘dot plot’ signals no rush for another 50bps cut, but jobs data hold sway

Investing.com — The Federal Reserve’s supersized rate cut in September isn’t a sign of things to come as the latest signals from the Fed’s ‘dot plot’ show that members aren’t in a rush to back another 50 bps cut unless there is an unexpected bump in the labor market. 

“Based on what we know now, we believe the FOMC probably leans toward downshifting to a 25 bps pace going forward,” Economists at Wells Fargo said in a recent note, flagging the updated Fed’s summary of economic projections, or so-called dot plot. 

The Fed delivered a 50 basis point rate cut on Sept. 18 and signaled that it could deliver two further 25bps cuts this year and a percentage point cut next year.

Fed Governor Michelle Bowman was the lone dissenter against the larger cut, favoring a smaller 25bps cut at the September meeting, but the dot plot showed “a meaningful share of the Committee is in no hurry to make 50 bps cuts the default move,” the economists added.

The Fed’s big rate cut was an effort to front-load the initial policy easing, Wells Fargo suggests, as most members of the FOMC didn’t “want to see any further weakness in the labor market.”

But hopes for another jumbo 50 bps cut could be revived should incoming labor market signals unexpected weakening. 

The next two employment reports, slated for Oct. 4 and Nov. 1, will be critical to the monetary policy outlook.

“An unexpected slowdown in payroll growth or larger-than-anticipated rise in the unemployment rate might push us to project another 50 bps move at the November 7 FOMC meeting,” Wells Fargo said.