WSJ Your Money Briefing - Consumer Spending, Slow Job Growth May Factor Into Fed’s Rate Decision

Episode Date: November 3, 2024

The Federal Reserve is expected to issue a decision on interest rates on Thursday, with one more scheduled for December. Wall Street Journal chief economics correspondent Nick Timiraos joins host J.R. Whalen to discuss how an uneven economy, and the presidential election, could impact the Fed’s plan in the months ahead. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Exchanges. The Goldman Sachs podcast featuring exchanges on rates, inflation, and U.S. recession risk. Exchanges on the market impact of AI. For the sharpest analysis on forces driving the markets and the economy, count on exchanges between the leading minds at Goldman Sachs. New episodes every week. Listen now. Here's an early drop of Monday's episode of Your Money Briefing. I'm JR Whalen for The Wall Street Journal. The results of the presidential election could play a role in upcoming interest rates decisions

by the Federal Reserve. But Fed officials will navigate a tricky economic picture as they settle on a rates move this week. So that's a puzzle right now. Does strong consumer spending lead the labor market to stabilize and for growth to stop slowing or does slowdowns in labor income growth lead consumer spending to slow in the months ahead? We'll talk to Wall Street Journal Chief Economics correspondent, Nick Timmeros, after the break.

This podcast is brought to you by CME Group, the world's leading derivatives marketplace, offering the widest range of global benchmark products across all major asset classes. CME Group, where risk meets opportunity. The Federal Reserve is scheduled to announce two more decisions on interest rates before the end of the year, the first of which is expected this Thursday. Wall Street Journal Chief Economics correspondent Nick Timouros joins me. Nick, we usually hear from the Fed regarding interest rates on Wednesdays. Why Thursday this week?

Well, the election is on Tuesday. They usually have a two-day meeting, so it seems that they did not want to start their meeting on Tuesday, so they pushed it back by a day just to have a little bit of space. Last month, they lowered interest rates by a half percentage point. What are we expecting this time? It's widely expected by investors that the Fed will cut interest rates by a quarter percentage point this time. And that's mostly because inflation has continued to decline. There doesn't seem to be any signs of major weakness in the economy, but their forecast has called for bringing interest rates down gradually, and so that's what's expected.

Oktobers job numbers came in far short of what economists were expecting. How could that work into the Fed's decision-making? It would be hard to make a big change based off of the October jobs report and that's because even though the numbers were weak, they were much weaker than economists were expecting. In October we had the strikes, the port workers strike and the Boeing strike. We had the hurricanes, Helene and Milton. And so that was bound to mess up these numbers. You have to take these numbers with a grain of salt. It's very possible that job growth slowed and is continuing to slow as it has over

the past year, but we'll get another jobs report before the Fed's next meeting in December and the November jobs report could help us determine whether this was a fluke or it really does mean the economy is slowing down and job growth is really slowing down. But consumer spending remains strong. How does that factor into how the Fed sees the health of the economy? So that's a puzzle right now. You could point to consumer spending and saying, well, look, so long as the consumer is spending, this economy is fundamentally good and there's nothing to worry about. And before the October jobs report, I think

that was the predominant view. The September jobs report was very strong and even after some downward revisions, we still added more than 200,000 jobs in September. By the same token, the trend in the labor market has been one of steadily slower growth, hiring rates are very low, firing has also been low, but hiring rates being low just tells you that there isn't as much demand for workers, people are not changing jobs as much. That's a sign of a cooler labor market. So the puzzle, what gives first? Does strong consumer spending lead the labor market to stabilize the puzzle, what gives first? Does strong consumer spending lead

the labor market to stabilize and for growth to stop slowing? Or does slowdowns in labor income growth lead consumer spending to slow in the months ahead? The quarter percentage point cut that's projected may not sound like a lot, but why is that important to people with stock portfolios or who might be in the market for a house? The direction of interest rates matters for longer term borrowing costs. So mortgage rates are a perfect example. In September, mortgage rates fell a lot. They came down from around 7% to 6%, not just because the Fed was making one interest rate cut in September, but because investors were expecting a string of interest rate cuts. In October, mortgage rates went back

up because investors began to say, gee, maybe the Fed isn't going to cut so much. So if the Fed does something different from what the market's expecting, if they were to not cut at their next meeting, you could actually see a bigger tightening in those borrowing costs. So if the Fed does what's expected here, it means that borrowing costs shouldn't go up much more. How can the results of the presidential and congressional races

impact decisions on interest rates going forward? The one thing that markets are focusing on right now is, does one party win complete control of Congress and the White House? Because that would make it easier to pass more sweeping changes on taxes and spending. You don't have to deal with divided government, so it doesn't slow you down as much. And there are some concerns that with either Harris or Trump, you could see deficits rise, interest rates might go up.

If investors are concerned that there's just going to be a bigger supply of government debt out there with the same number of people to buy those bonds. And how would that impact the direction of interest rates? The Fed is not going to make any immediate changes based on the election. They're going to want to see what the new president plans to do. And as that agenda comes into focus and as they begin to act on that agenda, it could determine, do they think that this means the economy is going to be stronger? And maybe they don't have to cut interest rates as much. Do they worry that tariffs or stricter immigration rules might prevent inflation from coming all the way back down to their target?

And so maybe they should slow down interest rate cuts. Those are the sorts of questions that they will have to turn over in the months ahead. That's WSJ's Nick Timros. And that's it for your money briefing. This episode was produced by Zoe Kolkin with supervising producer, Melanie Roy. I'm JR Whalen for the Wall Street Journal. We'll be back on Tuesday with a new episode.

Thanks for listening.