Strong jobs report won't derail Dec. rate cut, but upside inflation might: BofA

Investing.com -- A strong jobs report on Friday is unlikely to derail a December rate cut as many expect to see a rebound following a weather-related hit to October jobs report, but an upside surprise in November inflation could just do the trick, analysts from Bank of America (NYSE:BAC) said in a recent note.

"A strong jobs report is unlikely to derail a Dec Fed cut, but an upside surprise in Nov inflation could do the trick," Bank of America analysts noted.

The labor market is expected to have rebounded sharply in November after hurricanes, and striking workers at Boeing heavily impacted the October report.

The analysts forecast the U.S. economy created about  240,000 jobs in November, driven by payback from temporary drags in October caused by Hurricane Milton and the Boeing (NYSE:BA) strike.

Any strength in Nov payrolls is likely to  view as "payback for Oct," the analysts said, placing increased focus on the November inflation report.

The November inflation report is likely to garner added attention at a time when Fed members are concerned about a stall in progress on slowing inflation toward the 2% target. 

Still, the analysts continue to believe a December rate cut, barring any upside surprise in the November, is likely. 

"We think the Fed remains on track for a 25bp cut in Dec," the analysts said, pointing to recent Fed speak signaling for a rate cut later this month. 

"Recent Fedspeak has been guiding toward a Dec cut as well, with FOMC members arguing that the policy rate is still well above neutral," they added.

Federal Reserve Governor Christopher Waller said Monday he was leaning toward supporting an interest rate cut at the December meeting amid expectations for inflation to continue to slow toward the central bank's 2% target. 

"[A]t present I lean toward supporting a cut to the policy rate at our December meeting," Waller said. "But that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation," he added.