September Fed Rate Cut Seen as ‘In the Bag’

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What a difference a week and some downbeat economic data can make. The question around interest rate cuts has quickly gone from how long will the US Federal Reserve hold rates steady to has the central bank waited too long in its search for the right moment to make its soft landing? The most recent jobs report for July showed hiring slowed markedly and unemployment rose to the highest level in nearly three years. To be sure, employment was recently hovering at a half-century high, but the new numbers suggest to some a faster deterioration than previously thought. Throughout its battle with inflation, the US central bank has been trying to turn down the heat on the red-hot post-pandemic labor market through higher interest rates meant to tamp down demand. The weak July labor figures though add to other recent data that raise investor concerns of a more abrupt downshift, though many of those same Wall Street worriers spent two years being wrong (over and over again) about a recession that never came. For its part, the Fed kept rates steady when it met this week. But while bets had been centered on a quarter-point rate cut in September, some more eager voices are now hoping for a half-point. “A September rate cut is in the bag,” predicted Seema Shah, chief global strategist at Principal Asset Management.