Consumer Spending, Slow Job Growth May Factor Into Fed’s Rate Decision
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Here's an early drop of Monday's episode of Your Money Briefing.
I'm J.R. Whelan for The Wall Street Journal. The results of the presidential election could play a role in upcoming interest rates decisions by the Federal Reserve. But Fed officials will navigate a tricky economic picture as they settle on a rates move this week.
So that's a puzzle right now. Does strong consumer spending lead the labor market to stabilize and for growth to stop slowing? Or does slowdowns in labor income growth lead consumer spending to slow in the months ahead?
We'll talk to Wall Street Journal chief economics correspondent Nick Timoros after the break.
The Federal Reserve is scheduled to announce two more decisions on interest rates before the end of the year, the first of which is expected this Thursday. Wall Street Journal chief economics correspondent Nick Timoros joins me. Nick, we usually hear from the Fed regarding interest rates on Wednesdays. Why Thursday this week?
Well, the election is on Tuesday. They usually have a two-day meeting, so it seems that they did not want to start their meeting on Tuesday, so they pushed it back by a day just to have a little bit of space.
Last month, they lowered interest rates by a half percentage point. What are we expecting this time?
It's widely expected by investors that the Fed will cut interest rates by a quarter percentage point this time, and that's mostly because inflation has continued to decline. There doesn't seem to be any signs of major weakness in the economy, but their forecast has called for bringing interest rates down gradually, and so that's what's expected.
October's job numbers came in far short of what economists were expecting. How could that work into the Fed's decision making?
It would be hard to make a big change based off of the October jobs report. And that's because even though the numbers were weak, they were much weaker than economists were expecting. In October, we had the strikes, the port workers strike and the Boeing strike. We had the hurricanes, Helene and Milton. And so that was bound to mess up these numbers. You have to take these numbers with a grain of salt. It's very possible that job growth slowed and is continuing to slow as it has over the past year. But we'll get another jobs report before the Fed's next meeting in December. And the November jobs report could help us determine whether this was a fluke or really does mean the economy is slowing down and job growth is really slowing down.
But consumer spending remains strong. How does that factor into how the Fed sees the health of the economy?
So that's a puzzle right now. You could point to consumer spending and saying, well, look, so long as the consumer is spending, this economy is fundamentally good and there's nothing to worry about. And before the October jobs report, I think that was the predominant view. The September jobs report was very strong. And even after some downward revisions, we still added more than 200,000 jobs in September. By the same token, the trend in the labor market has been one of steadily slower growth. Hiring rates are very low. Firing has also been low, but hiring rates being low just tells you that there isn't as much demand for workers. People are not changing jobs as much. That's a sign of a cooler labor market.
So the puzzle, what gives first? Does strong consumer spending lead the labor market to stabilize and for growth to stop slowing? Or does slowdowns in labor income growth lead consumer spending to slow in the months ahead?
The quarter percentage point cut that's projected may not sound like a lot, but why is that important to people with stock portfolios or who might be in the market for a house?
The direction of interest rates matters for longer-term borrowing costs. So mortgage rates are a perfect example. In September, mortgage rates fell a lot. They came down from around 7% to 6%, not just because the Fed was making $1. interest rate cut in September, but because investors were expecting a string of interest rate cuts.
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