2024-09-06 20:24:36
Top Federal Reserve officials have left the door open to half-point interest rate cuts, even as they signalled the US central bank would move cautiously at its meeting this month following a mixed jobs report on Friday.
In appearances on Friday, governor Christopher Waller and president John Williams of the New York Fed endorsed a series of rates cuts this year given the fall in inflation and softening of the US labour market.
Now that “downside risks” had increased, Waller said the economic backdrop “requires action” from the Fed to avoid undue damage to the labour market, which he said was “continuing to soften but not deteriorate”.
Waller stressed the economy was “performing in a solid manner” with “good” prospects for continued growth, adding he expected rate cuts would be “done carefully”. The latest jobs report, he said in a moderated discussion, was no cause for panic but represented a return to a more “normal” pace of growth.
But he signalled he was open to cutting more aggressively if the data warranted it — comments that sparked a rally in US Treasuries.
“If the data suggests the need for larger cuts, then I will support that,” he said.
The two-year Treasury yield, which closely tracks interest rate expectations, dropped 0.09 percentage points to 3.66 per cent, while the benchmark 10-year yield fell 0.01 percentage points to 3.72 per cent.
Fed funds futures markets fluctuated on Friday, at one point pricing in a higher probability of a half-point rate cut from the Fed this month. Those bets were scaled back, however, but traders still expect more than a full percentage point of cuts this year, suggesting the central bank may have to escalate its response.
US stocks closed lower on Friday, with the S&P 500 dropping 1.7 per cent and the technology-heavy Nasdaq Composite gauge shedding 2.6 per cent. The indices notched up their biggest weekly drops since March 2023 and January 2022, respectively.
Williams also signalled that the Fed would react to incoming data as needed even as he underscored the economy remains on solid footing and monetary policy was “well positioned” to keep it that way.
Their comments came just after data showed the US added 142,000 jobs in August, while the unemployment rate ticked lower to 4.2 per cent.
The figures from the Bureau of Labor Statistics released on Friday came in below economists’ expectations for 165,000 new positions but surpassed the downwardly revised 89,000 jobs created in July.
A month ago, the BLS reported employment in July rose by just 114,000, which lifted the unemployment rate to 4.3 per cent and sparked concerns that the world’s largest economy was heading for a recession.
Fed officials will meet on September 17-18 when they are expected to agree to lower rates by a quarter point from their current 23-year high of 5.25 per cent to 5.5 per cent.
Analysts said market expectations for a 0.5 percentage point cut in September was an overreaction.
“The market is overly worried about a recession, and this report shows that there is no sign of a recession,” Torsten Slok, Apollo Global Management’s chief economist, said. “There is no need to go 50 [basis points] when the unemployment rate is falling.”
Fed officials are scrutinising the labour market for signs of weakness as they try to push inflation back down to the central bank’s 2 per cent target, which is based on the annual change in the personal consumption expenditures index.
Core PCE, which strips out volatile food and energy prices and is closely watched by policymakers, was 2.6 per cent in August, compared with a peak of more than 5 per cent in 2022.
The increase in August payrolls was in line with the average pace of jobs growth in recent months but marked a slowdown from the monthly gain of 202,000 over the past 12 months, according to the BLS. Construction and healthcare sectors were the strongest. The manufacturing sector recorded job losses.
Combined, employment in June and July was 86,000 roles lower than previously reported, stoking concerns that the labour market started losing momentum earlier than thought. For the month, average hourly earnings increased 0.4 per cent, translating to a 3.8 per cent year-on-year rise.
Williams forecast the unemployment rate would steady at about 4.25 per cent this year as the economy expanded by as much as 2.5 per cent, indicating little concern about an impending recession.
While Tom Porcelli, chief US economist at PGIM Fixed Income, does not expect the Fed to deliver a half-point cut this month, he said the data warrants multiple ones, underscoring the vast range of views about the economic outlook.
“If you’re waiting for evidence to show up in the most lagging of economic indicators — the payrolls report — then you are already late,” he said.
In an interview on Friday, former New York Fed president William Dudley said he was also fearful the Fed was moving too slowly, having previously advocated for the central bank to cut rates in July. He said both a recession and a soft landing were “in play”.
1725775878
#Top #Federal #Reserve #officials #leave #door #open #large #interest #rate #cuts #data #worsens
Fed rate cuts 2024 predictions
Table of Contents
Federal Reserve Officials Signal Openness to Half-Point Interest Rate Cuts
Top Federal Reserve officials have left the door open to half-point interest rate cuts, even as they signaled the US central bank would move cautiously at its meeting this month following a mixed jobs report on Friday. The comments from Governor Christopher Waller and President John Williams of the New York Fed have sparked a rally in US Treasuries and fueled expectations of further rate cuts this year.[3]The Fed’s benchmark borrowing rate, which influences a bulk of other rates that consumers pay, is currently targeted in a range between 5.25%-5.50%[4]
]. With inflation falling and the labor market softening, Fed officials are considering a series of rate cuts to support the economy.
Waller stressed that the economy is “performing in a solid manner” with “good” prospects for continued growth, adding that he expected rate cuts would be “done carefully”
Fed rate cuts 2024 predictions
Federal Reserve Officials Open to Half-Point Interest Rate Cuts Amid Mixed Jobs Report
The Federal Reserve has kept the door open to half-point interest rate cuts, despite signaling a cautious approach at their upcoming meeting on September 17-18. This development comes after a mixed jobs report was released on Friday, which showed the US adding 142,000 jobs in August, with the unemployment rate ticking lower to 4.2%[[[3]].
Top Federal Reserve officials, including governor Christopher Waller and president John Williams of the New York Fed, have endorsed a series of rate cuts this year, citing the fall in inflation and softening of the US labor market. Waller stated that the economic backdrop “requires action” from the Fed to avoid undue damage to the labor market, which he described as “continuing to soften but not deteriorate”[[[3]].
Waller also expressed openness to cutting rates more aggressively if the data warrants it, sparking a rally in US Treasuries. The two-year Treasury yield dropped 0.09 percentage points to 3.66%, while the benchmark 10-year yield fell 0.01 percentage points to 3.72%[[[3]].
Fed funds futures markets initially priced in a higher probability of a half-point rate cut from the Fed this month, but traders scaled back their bets, still expecting more than a full percentage point of cuts this year. This suggests the central bank may need to escalate its response to economic developments[[[3]].
US stocks closed lower on Friday, with the S&P 500 dropping 1.7% and the technology-heavy Nasdaq Composite gauge shedding 2.6%. The indices notched up their biggest weekly drops since March 2023 and January 2022, respectively[[[3]].
The Federal Reserve maintains the federal funds rate at a 23-year high of 5.25%-5.50% for the 8th consecutive meeting in July 2024, in line with expectations [[1]]. The Fed holds eight regularly scheduled meetings during the year and other meetings as needed, with links to policy statements and minutes available on their website [[2]].
Analysts have expressed skepticism about market expectations for a 0.5 percentage point cut in September, deeming it an overreaction. Torsten Slok, Apollo Global Management’s chief economist, stated, “The market is overly worried about a recession, and this report shows that there is no sign of a recession. There is no need to go 50 [basis points] when the unemployment rate is falling”[[[3]].
As the Federal Reserve prepares to meet on September 17-18, market participants will closely watch for signs of a potential rate cut. With the economy performing in a solid manner, the Fed will need to weigh the need for caution against the need for action to support the labor market.
References:
[1] United States Fed Funds Interest Rate. (n.d.). Trading Economics. Retrieved from
[2] The Fed – Meeting calendars and information. (n.d.). Federal Reserve. Retrieved from
[3] Sluggish US jobs report clears the way for Federal Reserve … (n.d.). AP NEWS. Retrieved from
