Federal Reserve Prepares for Third Interest Rate Cut of 2023

The Federal Reserve is set to announce its third interest rate cut of 2023, with traders anticipating a modest 0.25% reduction, consistent with previous cuts this year. However, this decision comes amid a significant data blackout due to a prolonged federal government shutdown, which has affected the release of crucial economic reports.

The Bureau of Labor Statistics has canceled the October jobs report, and the November report is delayed until December 16. Alternative data indicates a troubling trend, with ADP reporting a loss of 120,000 jobs among small businesses in November and a net loss of 32,000 jobs nationwide.

The Fed's Open Market Committee faces challenges in balancing a slowing labor market against persistent inflation, as evidenced by a September personal consumption expenditures reading of 2.8%, up from 2.6% in July.

The JOLTS report reveals a low hiring rate of 3.2% and a falling quit rate of 1.8%, suggesting a stagnant labor market. Additionally, tariffs imposed under President Trump's administration continue to exert short-term pressure on businesses, affecting their investment and hiring strategies.

Wells Fargo's CEO Charlie Scharf noted that while businesses remain positive about long-term competitiveness, they are prioritizing cost management over growth investments. JPMorgan Chase's Marianne Lake characterized the current consumer environment as fragile, indicating that while consumers and small businesses appear resilient, they have less capacity to handle additional stress.