Fed Rate Cut Odds Drop as BLS Cancels October Jobs Report Data

TLDR

• BLS cancels October Jobs Report, merging data with November’s.
• Delayed November jobs data shifts market expectations for December.
• December Fed rate cut odds drop to 32% after report cancellation.
• Federal Reserve faces limited labor data ahead of December meeting.

The U.S. Bureau of Labor Statistics (BLS) announced the cancellation of the October Jobs Report, creating a ripple effect on market expectations for the Federal Reserve’s December meeting. The announcement has drastically reduced the likelihood of a rate cut by the Fed next month.

The October Jobs Report, which includes key indicators like the unemployment rate and nonfarm payroll data, was originally scheduled to be released this week. However, due to the ongoing government shutdown, the BLS revealed it could not collect the necessary household survey data for October. As a result, this report will be merged with the November Jobs Report, which is now scheduled for release on December 16, six days after the Federal Open Market Committee (FOMC) meeting on December 10.

The Impact on Market Expectations

The cancellation of the October Jobs Report and the delay of November’s data has had a significant effect on market expectations. With no new data on the labor market available before the FOMC meeting, traders have reduced their expectations for a rate cut in December. According to the CME FedWatch tool, the odds of a 25 basis point rate cut in December have fallen to approximately 33%, down from over 50% earlier in the month.

Markets were initially expecting the Fed to ease monetary policy by the end of the year, particularly after comments from Fed Chair Jerome Powell suggested that rate cuts were a possibility. However, with the BLS unable to provide timely labor data, the Federal Reserve will be making policy decisions based on partial and outdated information. As a result, the probability of the Fed holding rates steady has risen to nearly 64%.

Fed’s Data-Dependent Approach Faces New Challenges

The Fed has consistently stated that its monetary policy decisions are based on the latest economic data, particularly employment data. Without the October Jobs Report and with November’s data delayed, the central bank is effectively flying “half-blind” into its December meeting. As James Lavish, a former hedge fund manager, noted, “The Fed cannot justify a policy change without a new employment report.”

The lack of timely labor market data raises uncertainty about the current state of the economy. Key indicators like nonfarm payrolls, which are a primary measure of job creation, will now be included in the delayed November report. The Fed will have to make critical decisions without these important indicators, potentially leaving it with limited insight into the health of the job market as it assesses whether further rate cuts are warranted.

Adjusting to the New Situation

The BLS’s cancellation of the October Jobs Report and the delay of the November report have led to a reshuffling of market expectations. The probability of a rate cut in December, which had been rising in recent weeks, has now taken a significant step back. With no new labor data available before the FOMC meeting, traders have scaled back their expectations, as reflected in the latest updates from Polymarket and CME FedWatch.

The data-dependent nature of the Fed’s decision-making process now faces an unexpected obstacle. With the cancellation of the October Jobs Report, markets are left with a less complete picture of the labor market. The delay of the November report only adds further uncertainty to the decision-making process.

As the December meeting approaches, all eyes will be on the BLS’s updated data, which will be released on December 16. Until then, the Fed will have to navigate its December policy decision with incomplete data, making it likely that the central bank will choose to hold rates steady until more comprehensive information becomes available.

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