The U.S. jobs report released last Friday showed a robust labor market, with employers adding 254,000 jobs in September. This exceeded economists’ expectations of 150,000 and pushed the unemployment rate down to 4.1%.
A very solid September payroll report probably takes a lot of the drama out of the November Fed meeting and likely leaves officials on course for a 25 bps cut https://t.co/dSKOnV7eIu
— Nick Timiraos (@NickTimiraos) October 4, 2024
The strong data has led some strategists to question the Federal Reserve’s recent decision to cut interest rates by half a percentage point.
NEW: Billionaire Stanley Druckenmiller tells me he's worried the Fed has boxed itself into a corner on rate cuts, after earlier indicating that 50 bps was too much to cut
Meanwhile, @elerianm warned @BloombergTV this morning that "inflation is not dead"https://t.co/IIVAaFuloA
— Sonali Basak (@sonalibasak) October 4, 2024
David Roche, founder and strategist at Quantum Strategy, called the move “silly, populist and panicky,” arguing that there is no case for additional 50-basis-point rate cuts. Roche believes the Federal Reserve should refrain from such drastic cuts unless there is a significant crisis. He warned that persistent rate cuts could mislead markets into thinking rates will fall much lower than is likely, predicting that Federal Reserve rates will not drop below 4% or 3.5% as the economy remains robust.
The “no landing” scenario – a situation where the US economy keeps growing, inflation reignites and the Fed has little room to cut interest rates – had largely disappeared as a bond-market talking point in recent months https://t.co/7kIN4xKqSC via @markets pic.twitter.com/7mhy59qa48
— Gregory Daco (@GregDaco) October 7, 2024
Bob Parker, senior advisor at the International Capital Markets Association, agreed, stating that there is no strong case for aggressive rate cuts.
Fed officials question rate cuts
“The probability of the American economy going into recession is close to zero,” he said, adding that core inflation will remain above the Fed’s 2% target.
Both strategists suggested that modest rate cuts of 25 to 50 basis points might be warranted by January next year, but another 50-basis-point cut at the next meeting is unnecessary. Dave Pierce, director of strategic initiatives at GPS Capital Markets, cautioned about the accuracy of current employment data, citing recent downward revisions to U.S. nonfarm payroll data. He also emphasized the ongoing impact of inflation, stating that while the economy is performing well overall, many Americans are still struggling with rising prices.
The consensus among analysts is that despite positive job numbers and a healthy economy, there is currently no justification for further significant rate cuts by the Federal Reserve in the near future. Some even suggest that the Fed’s recent half-point cut may have been a mistake, as it could reaccelerate the economy and push inflation up again. As the market digests the implications of the strong jobs report, investors will be closely watching the Federal Reserve’s next moves and the potential impact on various asset classes, from equities to bonds.
