Fed rate cuts loom large after weak jobs data
Business
Fed rate cuts loom large after weak jobs data
(Reuters) - U.S. central bankers may be having second thoughts about their decision earlier this week to hold borrowing costs steady, after a government report on Friday showed the job market slowed sharply last month.
Employers added just 114,000 jobs in July, the U.S. Labor Department reported, and the unemployment rate rose to 4.3%. The data pointed to an unexpected deterioration in the labor market that had held up surprisingly well during the Fed's aggressive rate-hike campaign.
On Wednesday, when U.S. central bankers opted to keep the policy rate in its current 5.25%-5.5% range, Fed Chair Jerome Powell said he believed the labor market was in a process of "ongoing, gradual normalization" that allows the Fed to wait a little longer to be sure inflation is beaten before cutting rates.
“If Powell knew then what he knows now, he probably would have cut rates," said Brian Jacobsen, chief economist at Annex Wealth Management. "By keeping rates on hold while inflation fell,
they’ve applied too much pressure on the brakes...the Fed can’t bank on economic momentum bailing them out from being too slow to recognize how quickly things are changing."
After the data traders piled into bets the Fed will deliver a half-point interest-rate cut at its Sept. 17-18 meeting, and keep cutting after that, with the policy rate expected to end 2024 a full percentage point or more below where it is now.
