Bank of Japan’s Rate Hike Dilemma

Will December Deliver a Surprise?

Last Friday’s non-farm payroll report showed a rebound in hiring activity following October’s disappointing number. A breakdown of the numbers showed that the Boeing strike and weather-related factors did indeed have an impact in October and some of November’s beat was a snapback reaction. Even taking that mean reversion out of the equation, the U.S. economy continues to add jobs at a steady pace and still shows little sign of breaking down anytime soon.

A rate cut at the Fed meeting in less than two weeks is looking more and more like a done deal. The odds of a cut have risen to 89% following Friday’s jobs report, but the outlook gets a little more cloudy after that. The next best chance is probably in March, where the odds are currently at around 65% for another cut. Either way, the days of expecting rate cuts at most meetings in 2025 are long gone. The market is still pricing in 2-3 cuts next year and even that might be optimistic if the current uptick in global inflation picks up steam in the midst of a global trade war.