Expectations of a US interest rate cut are once again on the agenda. Kay Haigh, managing director at Goldman Sachs Asset Management, said that recent soft employment data and inflation nearing target still make a December rate cut a strong possibility.
According to Haigh, this situation creates room for Fed Chair Jerome Powell to maintain his “risk management approach” before his term ends in May.
However, not all institutions share this optimistic outlook. Morgan Stanley, in an update, withdrew its expectation of a 25 basis point rate cut for its December meeting. The bank stated that September’s strong employment report reinforced the economy’s resilient outlook and that the Fed is unlikely to act hastily.
According to data from the U.S. Department of Labor, nonfarm payrolls rose by 119,000 in September. August’s data was revised down from a previously reported 22,000 increase to a 4,000 decrease. Economists polled by Reuters had expected only a 50,000 increase. The well-exceeding job growth has heightened uncertainty about the Fed’s December move.
Prediction markets also reflect this mixed outlook. According to the probabilities traded on Polymarket, at the December meeting:
The probability of a discount of 50 basis points or more is only 1%,
The probability of a 25 basis point cut is 36%,
The probability of interest rates remaining constant is priced at 63%.
*This is not investment advice.