Fed to Deliver 'Less Data Dependent' Rate Cut, Says Citi's Hollenhorst

Watch Fed to Deliver 'Less Data Dependent' Rate Cut, Says Citi's Hollenhorst - Bloomberg on Dailymotion

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00:00So what happens if the Fed gets a pile of jobs reports all at once, three before the next

00:04meeting in December? Yeah, so that makes it really complicated for the Fed. The Fed is

00:08supposed to be data dependent. They're making policy based on the data. But what do you do

00:12when you don't have data? They are kind of in a wait and see mode now. A bunch of data could pile

00:17up before that December FOMC meeting. Maybe some of it could even get delayed after the FOMC meeting

00:22depending on when the government reopens. I think they'll take a look at that data and they're

00:26really going to try to assess, like we wrote about, is the job market slowing down more

00:31persistently? We've certainly seen big revisions downward to the jobs numbers in prior months.

00:37Is that continuing in the data that we're seeing? If they see that, then not only is that a December

00:43rate cut, they could think about cutting further next year. So this rate cut today, as well as the

00:48rate cut in December, probably a little less data dependent just because they haven't had that much

00:52data. Next year is probably going to be more data dependent. You pointed to Governor Waller's

00:57comment about something's got to give, right? And Fed Chair Powell has talked about this labor

01:00market as being very strange because we're seeing weakness, but also maybe stagnancy on the supply

01:06and on the demand side. What will give then? Yeah, low hiring, low firing job market. It's not a

01:12great place to be, especially if you're just coming into this job market. So we're seeing that with

01:16younger workers, people coming out of college trying to get that first job and seeing that the demand

01:20for workers is just not that strong. That's really been the concern for Fed officials over

01:25the last few months. That balance of risk between price stability and employment shifted for them

01:30as they saw those weaker jobs numbers, more concern about the job market. On the other hand,

01:35the GDP data has been holding up OK. We've actually had fairly resilient GDP activity data.

01:40So that's the question. And that's why we need data. Yeah, exactly. And if you go beyond December,

01:45as you say, into next year, over the next eight to 10 months, markets are pricing pretty aggressive

01:51cuts. Will the Fed Chair validate that today or will he back off a bit? I think he's going to be

01:56very careful about giving any guidance. He doesn't have the data, so there's really nothing to guide

02:00with. Now, at the September FOMC meeting, they put their dots down where they thought rates should

02:06be at the end of this year. The median dot did indicate that they would be cutting at the September

02:11FOMC meeting, which they did October, today, December. So I think they can say, look, we

02:17haven't had any data. This is what we thought we were going to do back in September when we last

02:22met. With nothing to update the outlook, that's probably still the course that we're headed on.

02:26But I think he'll be very, very cautious about giving guidance because we don't have that data.

02:30We're going to get a bunch of data. And I think he'll emphasize we're waiting to see what that data is

02:35going to show and maybe even express a little bit of frustration that the government shut down and we

02:39don't have the data.