2024-09-03 16:29:19
The upcoming August jobs report will play a key role in determining the Federal Reserve’s approach to rate cuts, Bank of America analysts said in a report on Tuesday.
The bank expects nonfarm payrolls to increase by 200,000, higher than expected, and the unemployment rate to fall to 4.2%. Bank of America believes these data are key factors affecting the Federal Reserve’s monetary policy.
“August employment data will be key to the pace of the Fed’s near-term rate cuts. Overall, we see three paths for Fed policy,” Bank of America said.
In the first scenario, a strong jobs report would allay recession fears and lead to a “hard-line” Fed rate cut approach, with the Fed likely to implement just 25 basis points of rate cuts per quarter starting in September.
Bank of America believes the move could surprise the market, which currently expects a rate cut of about 100 basis points.
The second scenario is a milder report, with 100,000 to 150,000 jobs added and the unemployment rate remaining at 4.3%.
“We believe such a report ‘can neither confirm nor deny’ a recession, although it suggests that triggering the SAM rule is not a flash in the pan,” Bank of America wrote. “We think the Fed will change its base case forecast to 25bps of rate cuts at each of its remaining meetings this year. The dot plot could also show more than 100bps of rate cuts next year. But we think a 50bps cut in September is unlikely yet.”
The third and most worrisome scenario is that a weak jobs report (such as wage growth below 50,000 or a further rise in the unemployment rate) would fuel recession fears.
Bank of America hinted that the Fed may respond aggressively by cutting interest rates by 50 basis points in September, November and December.
Ultimately, as Bank of America noted, “the details matter” and the Fed will consider the full data when making its decisions.
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