Size of looming U.S. Fed rate cuts may hinge on job market

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Fed Chair Jerome Powell was not shy in saying that a cut could come at next month’s meeting, as long as economic data between now and then leans that way

U.S. Federal Reserve Chair Jerome Powell holds a news conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, on July 31.For financial markets, the key question hanging over the Federal Reserve’s expected policy easing increasingly revolves around the size of interest rate cuts and less on their timing.

If the forecasts are right, the report would signal a slight cooling of a still-strong labour market and would add to the case that Powell made on Wednesday when he said that “what the data broadly show in the labour market is an ongoing, gradual normalization of labour market conditions.” “I would not like to see material further cooling in the labour market,” Powell told reporters. “If we see something that looks like a more significant downturn, that would be something that we would … have the intention of responding to.”

Economists at Pantheon Macroeconomics, who estimate U.S. employers added a below-consensus 130,000 jobs last month, think even a full percentage point of rate cuts this year may not be enough to keep the economy on an even keel; they project the Fed will start with a quarter-percentage-point cut but escalate its easing with half-percentage-point moves at the Nov. 7-8 and Dec. 17-18 meetings.

 

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