Only a month ago, the CMETool predicted that the U.S. Federal Reserve would cut interest rates again. That probability dropped drastically, from over 95% to just 49.%. What happened?
In the last meeting, Fed Chair Jerome Powell warned that stock market participants should not assume a rate cut. Inflation is still around 3%, while cumulative price increases are taking a toll on consumers. Instead of cutting their spending, people are borrowing to pay for goods. Food stocks like Conagra (CAG) and Mondelez (MDLZ) trade near their low for the year. They are bracing for consumers to cut back on spending on food, candy, and other necessities.
Pepsi (PEP) and Coca-Cola (KO) bucked the trend. Investors are parking their holdings in those firms as a defensive play.
Fed Reserve Bank of Minneapolis President Neel Kashkari said on November 13 that he did not support the last rate cut. He is undecided on what the Fed should do in December.
Kashkari said that anecdotal evidence pointed to a resilient economy. Job cuts are in specific areas where firms may realize efficiencies. Amazon (AMZN) and Verizon (VZ) are examples of companies that cut jobs to lower their operating costs.
Mary Daly, who is San Francisco’s Fed president, expressed similar uncertainties. The monetary policy is currently in a neutral direction.
Boston Fed’s Susan Collins said on Wednesday that rates should not change for some time. Collins cited that 3% inflation is above the Fed’s 2% goal.
The Fed meets on Dec. 9-10.
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