Flags fly over the Federal Reserve building on a windy day in Washington
A severe U.S. employment market slowdown that sparked days of global stock-market turbulence also raised speculation that the Federal Reserve may lower rates before its September meeting.
An interest rate futures contract expiring later this month that follows Fed policy expectations rose to a two-month high early in the week in a bet that rates will fall by August.
The odds are against it. This Thursday, Chicago Fed President Austan Goolsbee noted, “The law doesn’t mention stocks. The Fed’s dual mandate is full employment and price stability.
Many economists now expect a half-percentage-point Fed rate drop in September. Few think the Fed will act sooner.
“Current economic data do not warrant an emergency intermeeting rate cut, and this would only ignite a new round of market panic,” wrote Kathy Bostjancic of Nationwide.
Former New York Fed President Bill Dudley called for a rate drop last week before June’s unemployment rate rose to 4.3%, but this week he called an intermeeting cut “very unlikely.”
On Wednesday, technology companies experienced a decline as a result of investor concerns over weak 10-year Treasury auction demand.
When global central bankers meet at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, Fed Chair Jerome Powell is likely to offer new guidance in late August.
Powell is expected to ignore the stock-market drop and adhere to what he said last Wednesday after the Fed left the policy rate at 5.25%–5.50%.
“If we do get the data that we hope we get, then a reduction in our policy rate could be on the table at the September meeting,” she stated.
Jobs, inflation, consumer spending, and economic growth statistics in the coming weeks may determine whether that drop is a quarter-point or more.
The U.S. central bank has lowered rates eight times between policy-setting sessions in the past 30 years, causing market turmoil beyond equities. Bond market signs of fast-developing interruptions to credit flows that keep businesses humming were clear, a factor lacking so far.
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