Last Friday, the U.S. jobs report indicated a strong workforce, as employers created 254,000 positions in September. This figure surpassed economists’ forecasts of 150,000 and lowered the unemployment rate to 4.1%.
A solid report on September payrolls likely diminishes the anticipation surrounding the upcoming Fed meeting in November, setting officials on a path for a 25 bps cut
— Nick Timiraos (@NickTimiraos) October 4, 2024
The positive employment data has prompted some analysts to reconsider the Federal Reserve’s recent choice to decrease interest rates by half a percentage point.
NEW: Billionaire Stanley Druckenmiller expressed concerns that the Fed has constrained its options regarding rate cuts, after previously suggesting that a 50 bps reduction was excessive
In addition, @elerianm cautioned @BloombergTV today that “inflation is not defeated”
— Sonali Basak (@sonalibasak) October 4, 2024
David Roche, founder and strategist at Quantum Strategy, labeled the Fed’s decision as “unwise, populistic, and hasty,” claiming there is no justification for further cuts of 50 basis points. Roche argues that such drastic measures should only be implemented in times of serious economic upheaval. He warned that ongoing rate reductions might mislead markets into expecting rates to go much lower than anticipated, predicting that the Federal Reserve’s rates will not drop beneath 4% or 3.5% as the economy remains strong.
The “no landing” scenario – where the U.S. economy continues to grow, inflation flares up, and the Fed has limited capacity to decrease interest rates – has predominantly faded as a talking point in bond markets recently https://t.co/7kIN4xKqSC via @markets
— Gregory Daco (@GregDaco) October 7, 2024
Bob Parker, a senior advisor at the International Capital Markets Association, concurred, noting that there is no compelling argument for severe rate reductions.
Fed officials reevaluate rate cuts
“The chances of the U.S. economy entering a recession are nearly non-existent,” he remarked, stating that core inflation is likely to stay above the Fed’s 2% goal.
Both analysts indicated that slight rate reductions of 25 to 50 basis points might be justifiable by January of the following year, yet an additional 50-basis-point cut at the forthcoming meeting appears unwarranted. Dave Pierce, director of strategic initiatives at GPS Capital Markets, raised concerns about the reliability of current employment statistics, pointing out the recent downward adjustments to U.S. nonfarm payroll data. He further highlighted the persistent effects of inflation, asserting that although the economy is faring well overall, many individuals are still grappling with escalating prices.
The prevailing opinion among experts is that despite favorable job statistics and a solid economy, there is no reason for further substantial rate cuts by the Federal Reserve in the immediate term. Some speculate that the Fed’s recent half-point cut might have been ill-advised, as it could revive economic activity and heighten inflation once more. As investors assess the implications of the strong job report, they will closely monitor the Federal Reserve’s subsequent actions and how these may affect various asset categories, from stocks to bonds.
