US | Fed to ease again despite flying blind on key economic data

Summary

The Federal Reserve is expected to deliver a 25 basis point rate cut this week, bringing the target range to 3.75-4.00%. Despite a government shutdown delaying official data, alternative indicators point to resilient economic growth but a softening labor market, prompting the Fed to continue its easing cycle cautiously.

Key points

• Key points:
• The third estimate of second-quarter GDP showed an upward revision to 3.8%, driven by stronger services spending and intellectual property investment, indicating solid underlying economic momentum.
• The privately sourced ADP employment report revealed a 32,000-job decline in September, the sharpest drop since early 2023, reflecting a broader deterioration in the labor market and a hiring freeze among firms.
• September core CPI rose by a below-consensus 0.23% month-over-month, bringing the annual rate down to 3.0%, as declines in used vehicles and medical goods offset tariff-related price increases in other categories.
• Fed funds futures have moved to price in a much deeper easing cycle, with roughly 100 basis points of additional easing expected by the end of 2026, causing the 10-year Treasury yield to fall below 4%.

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