Federal Reserve Chair Jerome Powell signaled the central bank is not in any rush to cut interest rates. LPL Financial chief economist Jeffrey Roach joins Seana Smith and Madison Mills on Catalysts to examine what's next in the Fed's ongoing easing cycles and the impact of the central bank's data dependency.
"I think it boils down to this: the Fed has to accept that data dependency has inherent risks. Especially when you throw in data revisions to that," Roach says, adding, "At this point, it's going to be a little bit choppy when you, in addition to what I already mentioned, had weather-related disruptions. So that's going to be a little bit of a tough time interpreting the next upcoming payroll report."
He explains that if labor data comes in hotter than expected, as it did for October, "that's going to put a little bit of headwind, I think, for those expecting a December cut. Although, at this point, it's somewhat of a coin flip."
The economist says he thinks "the neutral rate could be a little bit higher" than the Fed's 2% target. "I would not be surprised if there are more and more conversations that that long run rate needs to be a little bit higher. But still hover around 3%," he notes.
Roach ultimately believes Fed officials are "probably going to embrace this cut and pause cadence where they perhaps pause in December. But if they do cut in December, they're definitely going to pause in January. So the cut and pause, making sure that these slight upticks in the annual metrics of inflation are certainly head fakes, [is] not necessarily a change in trend."
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