Wall Street's Regret Over Fed's Rate Cut Decision

The U.S. non-farm payrolls for September showed an increase of 254,000 jobs, significantly surpassing the anticipated 140,000, which has led to a reassessment of the Fed’s monetary policy. Economists like Larry Summers have labeled the rate cut a “mistake,” arguing that the robust job growth indicates a resilient economy that may not require such aggressive easing. As a result, market expectations are shifting, with the probability of a 25 basis point cut for the upcoming Fed meeting rising to 99%, while the chance of maintaining the current rate stands at just 1%. This contrasts sharply with previous weeks when a 50 basis point cut was considered more likely.

Economic Indicators and Market Reactions

• Strong Job Growth: The September jobs report revealed a two-month net revision of +72,000 jobs and an unemployment rate that nearly dipped to 4.0%. This performance in the labor market has led to skepticism about the necessity of further rate cuts.

• Market Sentiment: Following the jobs report, the U.S. dollar strengthened, particularly against the Japanese yen, indicating a shift in investor confidence. The market had been pricing in a 32% chance of a 50 basis point cut prior to the report, but this sentiment has quickly changed to favor a more modest adjustment.

Future Outlook

The upcoming Fed meeting is now expected to be less dramatic, with many analysts suggesting that the strong payroll numbers will guide policymakers towards a more tempered approach. As Wall Street recalibrates its expectations, the focus will likely be on how the Fed balances its rate decisions with ongoing economic indicators, particularly in light of the recent labor market data.