An unexpected surge in the unemployment rate in the United States last week heightened market concerns that the economy is heading toward recession, causing U.S. stocks to plummet in the short term and even dragging down the global investment market. Although panic has eased for now, the market has begun to price in a more aggressive path for the Federal Reserve to cut interest rates.
The futures market shows that investors expect an interest rate cut of about 1% this year, and some economists predict that the Federal Reserve will cut interest rates by 2% in September.
Barkin: Have time to evaluate decisions
In this regard, two Federal Reserve officials spoke on Thursday. Thomas Barkin, President of the Federal Reserve Bank of Richmond, said that the Federal Reserve will have time to assess whether the U.S. economy is normalizing or is weakening, requiring officials to take more measures. Acting vigorously, he is optimistic that the inflation data in the next few months will be "good" and believes that the recent trend of slowing inflation will continue:
I think in a healthy economy, there's some time to figure out whether the economy is gradually normalizing, allowing you to normalize interest rates in a stable, prudent way, or whether you have to act aggressively.
When it comes to the U.S. economic situation, Thomas Barkin does not believe that widespread layoffs are imminent. He concluded that the economic performance in the past few months has been quite good overall and broadly, and all aspects of inflation appear to be stabilizing. His view on the economy Relatively optimistic about continued stability.
Schmid: Not ready to support rate cut yet
Kansas Fed President Jeffrey Schmid hinted that he is not ready to support a rate cut because inflation is above target and the labor market is still healthy although it has cooled slightly. He noted that the recent decline in inflation is "encouraging" and more The report of low price pressures will increase his confidence that inflation will return to the central bank's 2% target, and therefore can cut interest rates:
We're close, but we're not quite there yet.
Jeffrey Schmid believes that when evaluating economic data, one should be more cautious and look for negative factors in the data instead of only seeing the positive side. He emphasized that price fluctuations are normal and the Federal Reserve needs more time to observe and determine The long-term trend in inflation.
Jeffrey Schmid did not comment on when the Fed should cut interest rates, saying only that the policy path will be determined by data and economic conditions:
Overall, the labor market continues to look healthy. Last week's July jobs report left many questioning that resilience, but it's important to note that many other indicators point to continued strength in the economy.
The market estimates that the probability of a 2% interest rate cut in September is 56.5%
The core personal consumption expenditures (PCE) price index in June, which the Fed is closely watching, increased by 2.5% year-on-year, and the consumer price index (CPI) will be released next week, which will further affect the market's expectations for the Fed's policies.
The CME Group's FedWatch tool currently estimates that the probability of the Fed cutting interest rates by 2 percentage points in September has reached 56.5%, and the probability of cutting interest rates by 1 percentage point is 43.5%.
