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Recession fears in US increase pressure on Fed to consider rate cuts
(MENAFN) Recession fears in the U.S. and a significant stock market sell-off have increased pressure on the Federal Reserve to consider cutting interest rates. However, experts believe it is unlikely that the central bank will implement any rate cuts before its scheduled meeting in September. The heightened market volatility stems from concerns that U.S. economic activity could decelerate more sharply than previously anticipated.
Recent economic data has contributed to these concerns. In July, non-agricultural employment in the U.S. increased by 114,000, falling short of expectations, while the unemployment rate rose to 4.3 percent from 4.1 percent, marking its fourth consecutive monthly increase. Additionally, the Institute for Supply Management’s (ISM) manufacturing Purchasing Managers’ Index (PMI) dropped to an eight-month low of 46.8 in July, falling below market forecasts.
In response to this data, the probability of the Fed cutting its policy rate by 50 basis points in September has surged to over 90 percent in the money markets. The market turmoil has also suggested a possibility of an emergency rate cut. The Fed's last emergency rate cut occurred in March 2020, in reaction to the economic disruptions caused by the COVID-19 pandemic. However, analysts caution that the current market conditions may not compel the Fed to act before its September meeting.
Chicago Fed President Austan Goolsbee commented on Monday that while the recent employment figures were weaker than expected, they do not necessarily indicate an imminent recession. Goolsbee did not provide any insights into the likelihood of an emergency Fed meeting to discuss rate cuts, leaving the timing of any such decisions uncertain.
Recent economic data has contributed to these concerns. In July, non-agricultural employment in the U.S. increased by 114,000, falling short of expectations, while the unemployment rate rose to 4.3 percent from 4.1 percent, marking its fourth consecutive monthly increase. Additionally, the Institute for Supply Management’s (ISM) manufacturing Purchasing Managers’ Index (PMI) dropped to an eight-month low of 46.8 in July, falling below market forecasts.
In response to this data, the probability of the Fed cutting its policy rate by 50 basis points in September has surged to over 90 percent in the money markets. The market turmoil has also suggested a possibility of an emergency rate cut. The Fed's last emergency rate cut occurred in March 2020, in reaction to the economic disruptions caused by the COVID-19 pandemic. However, analysts caution that the current market conditions may not compel the Fed to act before its September meeting.
Chicago Fed President Austan Goolsbee commented on Monday that while the recent employment figures were weaker than expected, they do not necessarily indicate an imminent recession. Goolsbee did not provide any insights into the likelihood of an emergency Fed meeting to discuss rate cuts, leaving the timing of any such decisions uncertain.
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