The prospects for interest rates of the Federal Reserve are quite uncertain.

On October 29th, news came out that the Wall Street big shots suddenly issued a warning: the Federal Reserve may 'pause rate cuts' at its meeting next week. Top American economist and finance professor at the Wharton School, Jeremy Siegel, said in a recent interview that although investors are almost certain that the Fed will cut rates by 25 basis points again in November, if this Friday's non-farm payroll report is upbeat, it could overturn these expectations.

At the same time, Goldman Sachs CEO David Solomon stated in his latest speech that the U.S. economy is showing remarkable resilience and expressing concerns about global inflation issues; Bank of America CEO Moynihan warned that Fed policymakers should carefully consider the extent of rate cuts; BlackRock's President Fink believes that the current underlying inflation rate is higher than at any point in history, and that interest rates will not be as low as expected.

As the outlook for Federal Reserve rate cuts remains uncertain, the upcoming inflation and labor market reports are becoming key variables. This Thursday will see the release of U.S. personal consumption expenditure (PCE) data for September, which is the Fed's preferred inflation indicator; Friday will see the release of U.S. Octobernon-farm payroll dataanalysts warn that if the increase in employment exceeds expectations by a large margin, the Fed 'will have to carefully consider what to do next.'

On Tuesday local time, traders in Federal Reserve interest rate futures contracts increased their bets on further rate cuts by the Fed, as government reports showed a decrease in job vacancies last month, which may be a sign of further cooling in the job market. Interest rate futures contracts show that traders are increasingly confident that the Fed will cut rates by 25 basis points at each of the next two meetings, as well as further cuts next year, reducing the odds of a pause in rate cuts in November to around 2%.

The variables of the Federal Reserve

Top American economist and finance professor at the Wharton School, Jeremy Siegel, stated in a recent interview that although investors are almost certain that the Federal Reserve will cut interest rates by 25 basis points again in November, the release of the non-farm payroll report this Friday, if strong, may overturn these expectations.

Jeremy Siegel said, "If we see continued strength in the labor market data for October, many Federal Reserve officials may say, 'Perhaps we should pause the rate cuts at this time.'"

It is worth noting that in August, Jeremy Siegel called for an emergency 75 basis point rate cut by the Federal Reserve. Jeremy Siegel expects the Fed to cut rates three to four more times in this easing cycle. However, he mentioned that in the long term, interest rates may remain high. He added that the U.S. stocks appear "strong" and the U.S. economy still shows resilience.

At the same time, Goldman Sachs Group CEO David Solomon also mentioned in his latest speech that the U.S. economy is showing remarkable resilience and expressed concerns about global inflation issues.

Solomon stated that the Federal Reserve will base its rate decisions on the economic data from 2025.

Against the backdrop of a strong U.S. economy and the possibility of resurging inflation, Bank of America CEO Moynihan also warned that Federal Reserve policymakers should carefully weigh the extent of rate cuts.

BlackRock President Fink also mentioned that the current underlying inflation rate is higher than at any other time in history, and interest rates will not be as low as expected.

According to the agenda, the Federal Reserve will hold a policy meeting on November 6-7 local time, where Federal Reserve officials will once again enter a blackout period. Currently, the market almost fully prices in a 25 basis point rate cut by the Fed at that time.

It is worth noting that Federal Reserve officials will receive the results of the November 5 US elections before the interest rate meeting. Economist Matthew Luzzetti said that he does not believe the presidential election will change the Fed's plan to cut interest rates by 25 basis points on November 7, stating that "any impact of the new government on the economy will not be evident until 2025".

Economists unanimously believe that the road for the Federal Reserve after November will become more challenging, as continued strong economic reports will raise doubts about how strict the Fed's policy is. Currently, federal funds futures data shows a 22.3% probability of a pause in rate cuts in December.

Two key variables

Amid uncertainty about the Fed's interest rate cut prospects, the upcoming inflation and labor market reports will become crucial variables.

Firstly, on October 31, the US September Personal Consumption Expenditures (PCE) data will be released, which is the Fed's preferred inflation indicator. The market expects the core PCE year-on-year growth rate to decrease from 2.7% to 2.6%, while the Fed's target is to gradually reduce this indicator to 2%. Despite the better-than-expected performance of the Consumer Price Index (CPI) in September, some officials still argue for a gradual adjustment after substantial rate cuts.

Secondly, on November 1, the US October nonfarm payrolls data will be released. However, due to hurricane disruptions and the impact of Boeing employee strikes, this report may not provide a clear assessment. Economists expect job additions in October to decrease to 0.123 million, with the unemployment rate expected to remain unchanged at 4.1%.

Analysts warn that reaching around 0.18 million in nonfarm payrolls would be a magical number. If the number of jobs is higher, the Fed will "have to carefully consider the next steps".

Federal Reserve Governor Warsh pointed out that temporary job positions may suffer significant losses, with hurricanes expected to result in a reduction of over 0.1 million new jobs. Goldman Sachs estimates, based on unemployment claims, damage estimates, and past hurricane impacts, that just the hurricanes alone will reduce job growth by 0.04 million to 0.05 million positions. JPMorgan estimates around 0.05 million, while Barclays expects between 0.05 million to 0.06 million.

The Fed's Beige Book shows that the labor market is cooling moderately and remains stable, with recruitment mainly focused on filling vacant positions rather than creating new ones.

Finally, Fed policymakers are expected to cut interest rates twice by 25 basis points each in September for the remainder of this year. Despite hints from "hawkish" members that there may be a pause in rate cuts, according to Fed Chairman Powell's guidance, Wall Street analysts still believe that the Fed will stick to a 25 basis point cut before the end of the year.

But for the market, the impact of the rate cut in November may not be as significant as the U.S. presidential election. For the U.S. bond market, most speculation currently focuses on the risks associated with a Trump victory - that is, Trump's tax cuts and tariff plans could worsen the deficit and increase import costs, thereby pushing up yields.

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