Federal Reserve Expected to Implement 50bps Rate Cut in September, According to Gate Analysis

Recent employment data has prompted Gate’s economic experts to revise their projections for the Federal Reserve’s monetary policy. The latest figures suggest a significant softening in the U.S. labor market, potentially paving the way for a more substantial rate cut than previously anticipated.

Labor Market Shows Unexpected Weakness

The August employment report revealed a marked slowdown in job growth, with non-farm payrolls increasing by a mere 22,000 positions, substantially below the consensus forecast of 75,000. This tepid growth has brought the three-month average down to just 29,000 new jobs.

Adding to the concerns, the unemployment rate climbed to 4.3%, breaching its 15-month range and reaching a level not seen since the post-pandemic recovery period in 2021. The deterioration in labor market conditions appears to have occurred rapidly, with Federal Reserve Chair Powell’s characterization of the job market as “solid” at the end of July now seeming outdated.

Gate Analysts Predict Aggressive Rate Cut

In light of these developments, Gate’s economic team has adjusted its outlook. They now anticipate a 50 basis point rate cut at the September Federal Open Market Committee (FOMC) meeting, doubling their previous expectation of a 25 basis point reduction.

The analysts note that current market pricing, which implies a cut of 28-29 basis points for September, has yet to fully reflect this more aggressive stance. However, they believe that upcoming revisions to employment data covering April 2024 to March 2025, due to be released shortly, will support their bolder prediction.

Gate’s experts maintain that headline payroll figures and unemployment statistics may be underestimating the extent of labor market weakening. They point to potential distortions from birth-death adjustments in the data and highlight the more evident decline in the employment-to-population ratio as indicative of a softer job market.

While the team foresees a significant initial cut, they remain cautious about projecting further easing beyond September. The broader economic landscape and inflationary pressures may limit the Fed’s ability to continue aggressive rate reductions. Nevertheless, an initial 50 basis point cut could reshape market expectations regarding the pace of subsequent policy adjustments.

It’s crucial to note that these projections are based on current data and analysis. Economic conditions can change rapidly, and the Federal Reserve’s decisions will ultimately depend on a comprehensive assessment of various economic indicators and global factors.