US Jobs Report Sparks Speculation of Two Fed Rate Cuts in September and November
Critics Question Fed’s Timing After Weaker Than Expected Job Growth
Friday’s US jobs report provided more fodder for critics who say the Fed missed the right time to cut interest rates for the first time. Job growth in July was much weaker than expected, June’s figure was revised downwards and the unemployment rate rose from 4.1% to 4.3% – ultimately triggering the Sahm rule, Commerzbank’s FX strategist Michael Pfister notes.
“The release was followed by a flurry of action. The market moved up its rate cut expectations significantly and now expects more than four rate cuts of 25 basis points by the end of the year. In practice, the market is now leaning towards two rate cuts of 50 basis points each in September and November, fuelled by changes in the forecasts of major banks. There has even been talk of an emergency cut ahead of the September meeting.”
“Fortunately, after this exciting week, we should be in for a quieter few days. Hopefully, once the excitement has settled a little, market participants will realise that expectations have gone a little too far. I’m not saying that the jobs report didn’t give me cause for concern. Clearly, the labour market has weakened in recent months, which does not bode well for the US growth advantage.”
“I find it hard to imagine that the Fed will cut rates by almost 150 basis points by January, as the market expects. The economy would have to weaken significantly more for that to happen. And for those who are now mentioning the Sahm rule, it is worth remembering that the rule has typically been triggered in times of job losses, not in times of still moderate job growth.”
**Analysis:**
The US jobs report indicating weaker than expected job growth has sparked speculation in the financial markets about the Federal Reserve’s potential rate cuts. Market expectations have shifted significantly, with predictions of two rate cuts of 50 basis points each in September and November. This has raised concerns about the impact on the US economy and growth prospects. While the possibility of an emergency rate cut has been mentioned, it remains to be seen how the Fed will respond to the changing economic landscape. Investors should stay informed and monitor developments closely to make informed decisions about their investments.