The market is betting on interest rate cuts after a weak US jobs report.
Disappointing data from August reinforce expectations of an aggressive rate cut by the Federal Reserve as early as 2025.
247 - Bloomberg published this Friday (5) that the release of new data on the US labor market increased pressure on the Federal Reserve (Fed) to start cutting interest rates as early as September. The report showed modest job creation and rising unemployment, a scenario that strengthened expectations of a reduction of at least 0,25 percentage points at the next meeting of the US central bank.
According to the agency, interest rate futures contracts already factor in not only the September decision, but also the possibility of up to three cuts this year. Some analysts, given the fragility of the figures, are even considering the possibility of a more aggressive cut of 0,5 percentage points, although upcoming inflation indicators are expected to weigh heavily on the debate.
Labor market on alert.
According to the Bureau of Labor Statistics, the U.S. economy created only 22 jobs in August, while the unemployment rate rose to 4,3%. Furthermore, recent revisions showed that June saw a net loss of jobs for the first time since December 2020.
According to Diane Swonk, chief economist at KPMG, "there is no doubt that they will cut 0,25 points. This shows that the cracks in the labor market are widening, and that is problematic."
Fed faces dilemma
The central dilemma facing the Federal Reserve is the duality of its mandate: while unemployment rises, inflation remains above the 2% target and is likely to intensify with recently imposed tariffs. Some officials, such as regional presidents Beth Hammack (Cleveland) and Jeff Schmid (Kansas City), have expressed concern that stronger stimulus could reignite persistent inflationary pressures.
Austan Goolsbee, president of the Chicago Fed, told Bloomberg Television that he has not yet taken a definitive position on the September meeting. “The more moderate the inflation numbers are, the more comfortable I will be focusing solely on the labor market. But in recent reports we have seen increases coming from services, and we need to ensure that this is just a temporary deviation, and not a more worrying sign,” he stated.
Expectations for upcoming meetings
The Fed will still meet on October 28 and 29 and on December 9 and 10. Even before the August report, the central bank's chairman, Jerome Powell, had signaled in a speech in Jackson Hole that the institution's focus was shifting from a primary concern with inflation to greater attention to the labor market.
Political influence is also not ruled out. The current president of the United States, Donald Trump, has insisted on quick and aggressive interest rate cuts. His nominee for the Board of Governors, Stephen Miran, could reinforce this line if he is confirmed by the Senate in time for the September meeting.
Despite this, some analysts believe the Fed should not opt for a 0,5 basis point reduction now. Michael Gapen, chief economist at Morgan Stanley, said that "this report does not justify a 50 basis point cut in September, but perhaps the Fed needs to act sequentially, reducing by 0,25 points at each meeting, instead of just once a quarter."
