Markets plunged after a series of weaker-than-expected economic indicators, including an unexpected rise in the unemployment rate that triggered high-profile recession indicators.
As the growth trajectory comes into focus, investors are now deciding that bad economic news is bad news for the market. Economists generally agree that there is a growing risk that the Federal Reserve will keep interest rates too high, potentially hurting economic growth.
But there is no consensus on how quickly and quickly the Fed needs to adjust policy to address this risk. As of Monday afternoon, markets were pricing in more than five rate cuts by the end of the January 2025 Fed meeting, roughly two more than the market had priced in less than a week ago on July 31. many.
This pricing suggests that the Fed is “offside” and that a policy shift is needed as inflation declines and current interest rate levels become more restrictive, even though the Fed then takes no action. I agree with economists.
“The stance of monetary policy is quite restrictive at this point,” Jay Bryson, chief economist at Wells Fargo, said in a research note on Monday, saying he would call for a 100 basis point rate cut in the next two FOMC meetings. “In our view, the FOMC needs to quickly return to a ‘neutral’ policy stance. Otherwise, we risk a vicious cycle in which labor market weakness leads to weak spending, which leads to further labor market weakness.” There is a danger of falling.”
Deutsche Bank’s economics team supports calling for three rate cuts this year, but takes a different view. Senior US economist Brett Ryan told Yahoo Finance that recent market movements felt more like a “competition” between market participants and may have been overly optimistic rather than an accurate readjustment. he said.
Ryan said the key data is still missing to explain whether July’s weak jobs report is an aberration due to a temporary issue like Hurricane Beryl or confirmation that a trend is starting. No, he added.
“You don’t want to overreact to one data point,” Ryan said. “Therefore, there is no question that the risks have increased and we are leaning toward the Fed starting at a more aggressive pace of rate cuts, but we are not there yet.”
