"Data missing" disrupts interest rate cut plan, Goldman Sachs: originally planned "rate cut in December, pause in January", now uncertain.

The lack of key economic data is causing the Federal Reserve and the bond market to be in a "blind flight" state, forcing investors to reassess the possibility of a rate cut by the Fed in December. Analysts at Goldman Sachs have warned that the lack of data disrupts the expected rate cut pace, and the expectation of a "rate cut in December, pause in January next year" is now facing significant uncertainty. The current market pricing for a rate cut in December has dropped to below 50%. Although economic data will continue to be released as the US government reopens, investors are facing multiple data gaps: the October non-farm payroll report may not be released, the November employment report may not be available before the December FOMC meeting, and inflation data may also be missing. In the absence of data, the US interest rate market is in a wait-and-see mode, with 1-year forward 1-year rates fluctuating within a narrow range. This data vacuum directly impacts the market's previous expectations of policy paths. Goldman Sachs originally predicted that the Fed would make three "insurance" rate cuts, followed by a pause in January next year, but the lack of data has made this expectation uncertain. Goldman Sachs pointed out in a research report that, with very little data support, the US interest rate market is in a wait-and-see mode. The downside risks in the US labor market continue to exist, especially as the impact of artificial intelligence on employment, inflation, and the neutral rate is difficult to accurately assess, further complicating the policy outlook. Labor market risks are rising Despite the scarcity of data, existing indicators show downward pressure on the labor market. Challenger reports that private sector layoff announcements in October rose to the highest level outside of a recession. Goldman Sachs' layoff tracking index shows an increase in layoffs in October, currently above pre-pandemic levels. Based on regression analysis of the level of layoff tracking index and a series of other indicators, the risks of deterioration in the labor market have recently increased. The probability of a 0.5 percentage point or more increase in the unemployment rate over the next six months is 20-25%, compared to only 10% six months ago. AI impact adds complexity to policy making The widespread use of artificial intelligence adds new complexity to Federal Reserve policy making. Goldman Sachs analysts state that it is difficult to accurately model the exact impact of AI adoption on inflation, the labor market, and the neutral rate. Recent earnings conference calls indicate that discussions about layoffs have significantly increased after companies discuss AI technology. This trend has expanded from the tech industry to other industries, and the impact of AI on the job market may be more widespread than expected. Due to the uncertainty of the actual extent of AI adoption and its impact on various aspects of the economy, the Federal Reserve faces unprecedented challenges in formulating monetary policy. This further exacerbates the uncertainty in policy making.