Fed Likely to Hold Rates in November as US Economy Defies Recession Fears

The Case for a Fed Pause in November

The Federal Reserve is increasingly likely to leave interest rates unchanged at its November meeting, according to Torsten Slok, chief economist at Apollo Management. Despite inflation concerns, the US economy shows remarkable strength, raising the possibility that the Fed will adopt a more cautious stance for the remainder of 2024.

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Resilient Growth and Market Tailwinds

Slok attributes the economy’s momentum to several supportive factors. Elevated stock and home prices, narrow credit spreads, and ample corporate financing continue to bolster growth. The Atlanta Fed estimates Q3 GDP growth at 3.4%, reflecting strong economic performance and what Slok refers to as a “no landing” scenario—where expansion persists without a recession.

Bond Market Reflects Growth Expectations

The bond market has responded with rising yields, driven by concerns over inflation and fiscal policy:

• 2-year Treasury yield: Rose above 4%.
• 10-year yield: Climbed 9 basis points to 4.17%.
• 30-year yield: Approached 4.5%, impacted by option-related trades.

The market’s reaction underscores investor concerns about inflation reigniting, despite economic growth.

Policymakers Favor Caution Amid Strong Data

Policymakers like Dallas Fed President Lorie Logan have echoed the need for patience, suggesting that further rate hikes may not be necessary. The Fed’s September dot plot hinted at two possible rate cuts by year-end, but robust September employment data has shifted expectations toward a pause in November.

Upcoming Data and Market Uncertainty

With the October jobs report due on November 1 and elections adding political uncertainty, the Fed faces a complex decision. Traders are currently pricing 20 basis points of easing for November, signaling that markets expect the Fed to hold steady in at least one of its final two meetings.

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Conclusion: A Delicate Balancing Act for the Fed

The US economy’s resilience suggests that the Fed may opt to maintain current rates in November, allowing more time to assess inflation trends. While fiscal risks linger, including the potential for 5% yields on 10-year Treasuries, Slok believes locked-in low rates and government initiatives will continue to support growth. For now, the Fed’s best course may be caution as it monitors the evolving economic landscape.

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