Sluggish August job growth likely solidifies Fed's next rate cut
Federal Reserve: Most businesses remain optimistic despite trade uncertainty
Milken Institute chief economist Bill Lee and Moody’s chief economist John Lonski on former New York Fed President Bill Dudley’s article, the state of the U.S. economy and the China trade conflict.
The lackluster August jobs report released Friday morning will likely keep the Federal Reserve on track to cut interest rates by a quarter basis point during their meeting later this month.
Hiring increased by 130,000 — including 25,000 temporary census workers — falling short of Wall Street’s 158,000 projection, according to data released by the Labor Department.
Still, the report is probably not soft enough to convince officials at the U.S. central bank to aggressively lower rates. Unemployment remained at 3.7 percent for the third month in a row and wages are continuing to grow, with the average worker’s paycheck increasing by 11 cents to $28.11 an hour.
"When it comes to what the Fed will do on Sept.18, we’re still likely in for the quarter percentage cut," said Scott Clemons, chief investment strategist at Brown Brothers Harriman. "However the 50 basis points cut is rapidly diminishing."
In July, policymakers cut rates by 25 basis points to a range of 2 percent to 2.25 percent, citing "global developments in the economic outlook as well as muted inflation pressures." At the time, Fed officials did not say whether more cuts were likely.
But global economic conditions have softened since then.
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Manufacturing contracted in the U.S for the first time in three years; two-year Treasury yields rose above 10-year yields, which is a frequent recession indicator; revisions to GDP and employment data in the U.S. suggested the economy is weaker than initially thought; and heightened trade tensions between the U.S. and China continued to rattle investors.
There is also a concern that the year-long trade war between the U.S. and China will begin to result in consumers choosing to save rather than spend, ultimately hurting businesses. And if Americans become cautious spenders, it could cause businesses to hire fewer people — or even lay-off some employees — potentially sending the U.S. into a recession.
Traders are currently forecasting a 93 percent chance of a 25 basis-point cut.