Fed Set to Slash Rates by 0.25%

From the August employment numbers released by the US government, it can be inferred that the economy has not done well, with only 142,000 jobs created outside agriculture with the figures likely falling below 100k in the months ahead. However, there was a slight fall in the unemployment rate as it dropped to 4.22 percent from 4.25 percent but experts believe that such rates could go above 4.5 percent. There is a level of hiring restraint as layoffs are minimal which could allude to potential layoffs in the near future as hiring would show notable drops. As this transition takes place, there is also an increase in people working part-time for economic reasons as well as job losses in the manufacturing and retail sectors which give a picture of economic recession coming up.

It is clear that the current concerns are justified and the Federal Reserve (Fed) is ready to lower FFR by 25 bpsiiat its next week meeting and if more easing measures are required in future then it would do so depending on the economic scenario. Regarding rate cuts, Waller and Goolsbee agreed that in the absence of a deep bear market prospect a mild cut is in the pipeline. This strategy is specifically referred to as the first wave of measures aimed at changing the situation in terms of the slow momentum shifts triggered by the rigid monetary policies other than growth challenges facing the economy for years now.

Recession Signals Debate

The labor market’s lack of deterioration as reflected in the stable unemployment figures and the job creation level does not go well with the many analysts’ outlook arguing that the recessions are around the corner. Trends in past economic cycles revealed that layoffs and employment numbers are often trailing behind the economic activity as has been observed in recessions of 2007–2008 and 1973–1975.

The same can be said about the outlook for two-­‐ year inflationary expectations, The 2­‐year Treasury Indexed Securities Inflation Breakeven Rate is at 1.5%. This trajectory allows the FED’s agenda on the forthcoming cuts, estimated at 100 basis points by the early 2025, aimed at counteracting passive monetary tightening of the latest months.

While these programs are ongoing, other variables such as political uncertainties in the EU, especially France are completely different from the situation in the US. Recent political events in France such as the fight over the “de-Lepenization” of President Macron’s policies have triggered extreme scenes of anger in the population and asked for a “Brexit”. The combination of political decay with conflicting arguments about spending policy clearly demonstrates the degree of complexity that poses a threat to political and economic order around the world.