Wall Street comments on non-farm payrolls: It's no longer a question of whether to cut interest rates in September, but whether to cut by 50 basis points

The U.S. non-farm payroll employment increased by 114,000 in July, the lowest since December 2020, far below the expected 175,000, and significantly down from the previous value of 206,000 (revised down to 179,000), leading to the unemployment rate rising to its highest level in nearly three years. Wall Street analysts have expressed that the issue the Federal Reserve is facing now is not whether to cut interest rates in September, but whether to cut rates by 0.5%.

Renowned financial journalist Nick Timiraos, known as the "New Fed News Agency," stated that the slowdown in job growth in July, coupled with a significant increase in the unemployment rate, is likely to end the debate on whether to cut rates in September, although almost no one doubted the rate cut in the first place.

Instead, the debate will shift to whether the Fed should cut rates by 0.25% as in 1995, 1998, and 2019, or by 0.5% as in the economic downturns of 2001 and 2007.

Brian Jacobsen, Chief Economist at Annex Wealth Management, said,

"If Powell knew then what he knows now, he might cut rates. By keeping rates unchanged while inflation is falling, they are putting too much pressure on the economy."

Derek Tang, Economist at LH Meyer/Monetary Policy Analytics, mentioned:

"This environment implies an accelerated rate cut. The Fed has been inclined to avoid a recession, or what they call maintaining expansion. With this employment report, the Fed's inclination will be even more apparent, with inflation risks almost forgotten."

Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, stated,

"The Fed's inaction this week was a mistake; there is a very strong case for a 50 basis point rate cut in September, and the poor July employment report makes the Fed appear far behind the curve."

Stephen Brown, North America Deputy Chief Economist at Capital Economics, mentioned that these new data might even increase the likelihood of an "inter-meeting emergency rate cut" by the Fed before the September meeting, sparking speculation about the start of an easing cycle. Brown also noted that a 50 basis point rate cut is also a possibility.

Marc Pinto, Head of Americas Stocks at Janus Henderson Investment Company, said that this report "will certainly raise concerns about the Fed falling behind the curve. A 50 basis point rate cut in September could 'send shockwaves through the market,' reinforcing the argument that the Fed is behind the curve. He said, "This would send a strong signal to the market, but this signal may not be well received."

Evercore ISI stated:

"There is now a real possibility that the first rate cut will be 50 basis points in September. Following this report, we believe the Fed will cut rates at least three times in 2024 - in September, November, and December - to ensure a soft landing in a more preemptive manner."

Clark Bellin, Chief Investment Officer at Bellwether Wealth, expressed:

Despite the significant resilience of the labor market during the past two years of interest rate hikes, the Federal Reserve must continue to cut interest rates in September as expected to prevent further slowing of the labor market.

Some analysts do not believe that the U.S. economy has entered a recession. Jeffrey Roach, Chief Economist at LPL Financial, stated:

The latest situation in the labor market is consistent with an economic slowdown, but it does not necessarily mean a recession. However, early warning signals indicate that the economy will further weaken.

Roach pointed out a relatively positive phenomenon, with the number of part-time workers due to economic reasons surging to 4.57 million in July, an increase of 346,000 from the previous month, reaching the highest level since June 2021.

Mike Reynolds, Vice President of Investment Strategy at Glenmede, also stated,

"If the Federal Reserve is to achieve a soft landing, this is probably what it looks like. What you are seeing is just a moderate softness at the margins of the labor market, which is unlikely to evolve into a negative feedback loop."