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By Greg Robb

Despite dramatic differences among Fed officials, opinions are coalescing behind a third interest-rate cut in succession

Federal Reserve Chair Jerome Powell speaks at a press conference in October.

Over the past month, there have been sharp public disagreements among Federal Reserve officials about the likely path of the economy and the appropriate level of interest rates. These public debates led economists and market participants to doubt there was enough support within the Fed for another interest-rate cut at the central bank’s upcoming Dec. 10 policy meeting.

However, in the last few days, perceptions have shifted – and investors and economists now think the Fed is likely to cut.

What sparked this turnaround? Economists say Fed officials are coalescing around another rate cut due to continued concern about the health of the jobs market.

“The deterioration we’ve seen in the labor market, I think, is enough justification for the Fed to cut in December,” said Tom Porcelli, chief economist at Wells Fargo, in an interview.

The first important official data released since the end of the government shutdown showed the unemployment rate rose to 4.4% in September, the highest level in almost four years. And there was some indication that the “low hiring, low firing” dynamic seen in the labor market might be on the cusp of worsening.

The jobs market remains “in a precarious spot,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank, in a note to clients.

In an interview, Josh Hirt, senior economist at Vanguard, said it was his personal view that the Fed would cut rates. He noted how, on Friday, New York Fed President John Williams, a close ally of Fed Chair Jerome Powell, made a strong case for a rate cut and said he “stills sees room for a further adjustment in the near term.”

This moved financial markets, as the expectations of a December rate cut rose sharply to above 70%, from near 40% the day before.

“I think the market has the right read on it,” Hirt said.

The Vanguard economist added that Williams’s speech meant three of the most influential Fed officials – Powell, Williams and Fed governor Christopher Waller – all support another easing move.

“We think that’s a pretty strong group to try to overcome,” Hirt said.

Ethan Harris, former chief economist at BofA Securities, said the economy is starting to show more convincing signs of weakening, pushing the Fed to act.

Economists think there will be a dissent from one or more Fed officials who want to hold interest rates steady.

The Fed has already cut rates via two successive quarter-percentage-point moves in September and October, bringing its benchmark rate down to a range of 3.75% to 4%.

Former Cleveland Fed President Loretta Mester said that Powell could use his press conference on Dec. 10 to send a message that this cut was an insurance move and the Fed would then wait and see how the economy reacts.

Because of the record-length government shutdown, the Fed won’t have the government’s latest job and inflation data at their meeting.

Stepping back, the Fed is facing an impossible challenge, Harris said. They are dealing with stagflationary dynamics – higher inflation and higher job losses at the same time – which do not have an obvious Fed policy response. This has divided the rate-setting committee.

“There are some very fundamental disagreements,” Harris said.

The first is whether current Fed policy is tight or loose. Fed officials who are uneasy about inflation say monetary policy works through capital markets, which are doing great – a sign policy might be easy already. Officials who want to cut rates say that financial conditions in key sectors like housing are tight.

The second disagreement is over how to interpret inflation. Officials, like Williams, who want to cut rates said inflation would be low if it wasn’t for the temporary impact of tariffs. Officials who are worried about inflation see signs it is rising in sectors not impacted by tariffs.

On top of that, all Fed officials are puzzled by the dichotomy between the weak job market and strong consumer spending.

“It is going to be an interesting vote,” Harris said. The decision could be made in the meeting, he added.

Hirt at Vanguard said the speeches by Fed officials who don’t want to cut rates in December have shown the market that the Fed isn’t just “cutting for the sake of cutting,” and so the bond market won’t start to price in higher inflation expectations.

“It limits the negative consequences” of cutting with inflation so high and the labor market not in obvious distress, Hirt added.

-Greg Robb

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Breaking new ground is part of the Cayenne’s product philosophy. This also applies to an unusual project: for the first time, Porsche has completely overhauled and extensively individualised a first-generation Cayenne on behalf of a customer as part of the “Factory Re-Commission” Sonderwunsch category.

The Cayenne is an icon

“So far, we have mainly carried out such elaborate Factory Re-Commission projects for classic Porsche or for rarities such as the Carrera GT,” says Alexander Fabig, Vice President Individualisation and Classic at Porsche. “The fact that we have now rebuilt a 16-year-old Cayenne to new car condition and made it an absolutely unique piece shows how diverse the dreams of Porsche enthusiasts are. And it once again underlines the iconic status of the Cayenne.” 

The client was Phillip Sarofim, entrepreneur and passionate car collector. The American had turned to Porsche with very specific ideas: “The look of the 911 Spirit 70 made a lasting impression and inspired me. I really wanted such 1970s vibes for my Cayenne as well.” The basis was a 2009 Cayenne GTS with around 50,000 miles, the equivalent of almost 80,500 kilometers, on the odometer. The only catch: there was none – only a towbar had to be retrofitted. Because a dream trip with the new old Porsche also took shape early on: “From the very beginning, I had the idea of driving through the Rub al-Khali Desert near Dubai,” Sarofim recalls, “with a large Airstream caravan.”

A towbar was retrofitted for the American cult caravan, namely the typical US “receiver system” with square mount. Coarse tyres improve traction and underline the striking look. To achieve the desired retro look, the exterior is finished in Blackolive, a Paint to Sample color. The lower part of the body as well as the alloy wheels, on the other hand, are finished in matt black, which reinforces the off-road character of the SUV.

In the interior, the extensive leather upholstery in English green (Leather to Sample) meets the iconic Pasha pattern in black/olive. The seat centres, but also the glove compartment inside, are covered with this typical Porsche textile. Cleverly arranged rectangles of different sizes create a kind of movement in the pattern. The trim strips on the passenger side and in the doors form a noble contrast: just like the door openers and their frames, they are finished in light-brushed aluminium.

So there’s nothing to stop you from riding into the desert any time soon – and with this Factory Re-Commission, the Cayenne has once again proven its versatility and pioneering spirit.

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About Factory Re-Commission

If customers want high-end vehicle customization for a vehicle they already own, they will find what they are looking for at Sonderwunsch Factory Re-Commission. As part of this offer, the colours and materials in the interior and exterior can be completely reselected. After contact has been established between the customer and the Sonderwunsch team, an initial assessment of the technical feasibility for the colour and equipment request is made. A cost estimate will be prepared as soon as the vehicle has been brought to Zuffenhausen for inspection by the Sonderwunsch experts. For these reasons, this offering focuses on whole-vehicle concepts rather than retrofitting individual options. The older the customer’s vehicle, the more likely it is that technical repair work will be necessary in combination with individualization. This is especially true for classic cars, where a factory restoration is often a mandatory part of the project.

About the first Cayenne generation

Ferry Porsche sensed the chances of success of a Porsche SUV as early as 1989: “If we built an off-road vehicle according to our quality expectations, and Porsche was written on the front, it would also be sold.” He was right: since 2002, the Cayenne has been opening up new customer bases as a family-friendly touring vehicle that is both a robust off-roader and a highly dynamic sports car. Developed under the code name Colorado, the first generation (internally called E1) was launched in 2002. In the meantime, these models, which were produced until 2010, have a loyal fan base, and Porsche is already looking after them as youngtimers.