More jobs put FED cut rates in question

10:43 | 06/07/2019

The uptrend in employment rates would put the Federal Reserve (Fed) in question, shifting from discussing how much to cut rates to whether to cut at all.

It is likely that the uncertainties in US economic performance could lead to an interest rate cut from the Fed. However, according to the latest report, there were 224,000 new jobs in June nationwide, far above the 170,000 forecast by economists. Also, unemployment rate witnessed a slight fall from 3.7 to 3.6 per cent.

Despite Fed’s strong hints of a rate cut, the falling unemployment rates trumped the expectations of experts in the US. Before the payrolls report was released, Wall Street, as gauged by CME Group data, was pricing in a near-certain reduction of rates, with the market giving a 25 per cent probability that the Fed will cut rates by 50 basis points, rather than its typical 25, later this month.

After the release, the probability of a 50 basis point cut fell to 5.9 per cent, though expectations for a cut of at least a quarter-point remained at 100 per cent, according to Marketwatch.

more jobs put fed cut rates in question

More jobs put Fed cuts in question. Photo: Fed Chairman Jerome Powell

The number of payrollsmight raise questions of the strongly-held belief that the Fed will cut interest rates at its late July meeting. Instead of discussing the magnitude of the cut, the question would rather be about cutting or not.

On July 30-31, the Fed Open Market Committee will hold a discussion on insurance cutamid global turbulence, trade frictions, and low inflation.

“It is going to be a pretty well-debated meeting,” said Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York, who said a half-point cut is now off the table. “I think ultimately they ease because they signalled it so strongly. It is an insurance easing. The cost of such of an easing isn’t high because inflation doesn’t present any kind of near-term risk.”

Moody’s Analytics’s head of monetary-policy research Ryan Sweet expressed his thoughts that the cut would be 65 per cent which would be intended as insurance against a slowdown, boost inflation expectations and “signal the Fed isn’t going to kill this expansion," Bloomberg reported.

Luu Huong

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