Rate cut expectations surge as U.S. employment slows…"70% chance of a December cut"

Employment slows · Inflation remains firm

Official statistics 'all stop' as shutdown drags on

Fed faces growing confusion ahead of December decision

Private U.S. economic indicators point to a slowdown in the labor market, increasing expectations that the U.S. central bank (Fed) will cut rates next month.

On the 6th (local time), according to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability that the December benchmark rate will remain unchanged in the federal funds rate (FFR) futures market fell to 31%. This is down from about 38% at the previous day's close. Meanwhile, the probability of a 0.25%-point cut rose from 62% to 69%, an increase of 7 percentage points.

Currently, the market is relying on private institutions' employment indicators as the U.S. Department of Labor's official statistics releases have been delayed due to the longest-ever U.S. government shutdown. Bloomberg reported, "After two consecutive cuts that lowered the policy rate to an annual 3.75~4%, the Fed is weighing a balance between stubborn inflation and employment indicators showing signs of weakening."

Meanwhile, in a speech at the New York Economic Club the same day, Beth Haemac, president of the Federal Reserve Bank of Cleveland, said, "Inflation is at too high a level and, moreover, is moving in the wrong direction," expressing a negative view on further rate cuts.

She said, "Labor market conditions have weakened somewhat but remain broadly resilient." President Haemac does not have voting rights on this year's Federal Open Market Committee (FOMC), but will have voting rights next year.

Im Dayeon, Reporter allopen@hankyung.com