The Federal Reserve is anticipated to lower interest rates in September due to ongoing economic disruptions and fluctuating market conditions.
A snippet from the discussion on @CNBC featuring @scottwapnercnbc
Thanks, Scott, for including me on @cnbcclosingbell https://t.co/OMwoYEDipp #FederalReserve #economy #markets #econtwitter— Mohamed A. El-Erian (@elerianm) August 13, 2024
The Dow Jones experienced a significant decline, plummeting over 1,000 points on Monday, marking its most challenging session since 2022, following an unexpected jobs report and instability in the Japanese market. According to the Bureau of Labor Statistics, only 114,000 jobs were added last month, a drastic reduction compared to the previous months.
The unemployment rate also increased to 4.3% in July, intensifying fears of a recession. However, global markets saw some recovery, with the Nikkei 225 enjoying its best performance since October 2008, soaring by 10.2%.
Post-CPI September rate cut probabilities on Polymarket now indicate 68% for 25bps compared to 63% before the data, and 26% for 50bps versus 33% pre-data. pic.twitter.com/2Uu3NoXmxD
— *Walter Bloomberg (@DeItaone) August 14, 2024
Nevertheless, the recovery was short-lived; by Wednesday, the Dow had tumbled by another 234 points, and the S&P 500 fell by 0.8%.
CPI PREVIEW: LARGE MISS REQUIRED FOR FED TO INFLUENCE 50BP CUTS
“It seems that we will need further negative surprises to move away from our base case of a 25bp cut by the Fed. With August reports pending for payrolls and CPI ahead of the September 18 FOMC meeting, it…
— *Walter Bloomberg (@DeItaone) August 14, 2024
Melissa Cohn, the regional vice president at William Raveis Mortgage, mentioned that the weak employment report almost guarantees an interest rate reduction.
Expectations for the Fed’s September rate cut
Consumers can anticipate a modest initial reduction, but more significant adjustments in interest rates may follow if the Fed proceeds with multiple cuts before the year concludes.
Mortgage rates may remain stable despite a Fed cut, although rates for other loans such as home equity, student loans, and auto loans are likely to decrease with each Fed rate cut. “It’s important to remember that mortgage rates hinge on the bond market, more closely linked to inflation data and economic indicators than to the Fed funds rate,” added Cohn. Economists are split on the likelihood of the U.S. entering a recession.
The increase in the unemployment rate to 4.3% has triggered the Sahm rule, which serves as an economic recession indicator. However, Adam Schickling, a senior economist at Vanguard, asserts that it is unlikely a recession has commenced, citing conflicting reports and peculiarity in the job market data. While concerns regarding a recession might be an overreaction to a bad week and disappointing employment statistics, a persistent downturn in the employment market could indicate a more significant issue on the horizon.
