Fed's Powell cautiously speaks out: Asserting that a slowdown in employment is "truly weak" is premature

According to the Zhitong Finance and Economics APP, Mary Daly, President of the Federal Reserve Bank of San Francisco, made cautious remarks after the market plunged on Monday. She expressed "more confidence" that the U.S. inflation rate is gradually approaching the Fed's 2% target, and believes that the slowdown in the labor market has not reached a level that would trigger panic. At the same time, she refused to predict when the Fed would start cutting interest rates.

Daly stated, "Inflation is clearly coming down and approaching our target. We have seen the labor market slowing, and it is critically important that we don't slow it too much to the point of recession."

She also believes that it is too early to judge whether the labor market is slowing to a sustainable pace to support continued economic growth or if it has already reached a true soft state.

Daly reiterated the views of Fed policymakers, expecting rates to fall to "maintain a balance between full employment and price stability." However, she stated that she is not prepared to disclose specific timing and extent of rate cuts, as she plans to focus on more economic data between now and the next Fed policy meeting in September.

She admitted, "I can't tell you whether we will have a certain degree of rate cut."

Due to heavy selling of Wall Street stocks and concerns about economic recession triggered by last Friday's disappointing jobs report, pressure is mounting for a Fed rate cut. Data released by the U.S. Bureau of Labor Statistics shows that the U.S. economy added 114,000 non-farm jobs in July, below the expected 175,000. The unemployment rate rose to 4.3%, the highest level since October 2021.

Traders currently expect the Fed to take more aggressive action in the remaining months of 2024, with rate cuts of 50 basis points expected in September and November, followed by another 25 basis points in December. Previously, traders expected a 25 basis point rate cut for the rest of the year.

Michael Feroli, Chief Economist at JP Morgan, stated that the likelihood of a rate cut is increasing before the next policy meeting on September 17-18. In a research report, he pointed out that there are "ample reasons to take action before September."

Feroli added that the Fed seems to be "seriously lagging behind the curve," and he expects the Fed to cut rates by 50 basis points at the September meeting and another 50 basis points in November.

However, Daly noted that labor market data lags behind, and the significant temporary layoffs in the July report released last Friday could be reversed in the next jobs report. Regarding the rise in the unemployment rate, she pointed out that part of the increase in the labor force is due to new immigrants entering the job market, who typically take longer to find work when they start working Dai Li said, "I will closely monitor whether the next labor market report continues to show the same numbers or trends, but the situation may also reverse."

She also shared her action on Friday, which was to call the CEOs in her region to find out if they were slowing down recruitment or laying off employees. She confirmed that the company is currently slowing down the pace of recruitment, but the situation has not deteriorated.

"We have not seen companies laying off employees," Dai Li said. "We have not seen a slowdown in demand, consumer demand remains strong, income flows are still healthy. Order volume is also good. Therefore, I believe the economy still has momentum for growth, and we hope to ensure that this momentum is maintained."