Senior Official from the Federal Reserve "Puts Out the Fire": Don't Panic, Don't Worry About Employment, No Recession Either

After the collapse of the Japanese stock market and the sharp decline in European stocks, the US stock market also couldn't withstand the pressure.

On Monday, the Dow Jones plunged 1000 points to a nearly two-month low, while the S&P 500 index, the Nasdaq, and the Russell 2000 small-cap index all fell by over 3%. The small-cap index hit its lowest point in nearly a month, with all sectors of the US stock market closing lower, and the technology sector performing the worst with a 3.8% decline.

Due to growing concerns among investors about the slowdown in the US economy and weak employment, panic spread, and the overnight "fear index" VIX surged by 181% to 65.73, reaching its highest level since the March 2020 pandemic.

Amidst the widespread panic among investors, Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly stepped in to reassure investors.

Goolsbee emphasized that the July non-farm payroll report is just "one piece of data," and while the employment data was weaker than expected, it does not indicate a recession.

The Fed's job is very direct, which is to maximize employment, stabilize prices, and maintain financial stability. That's what we're going to do, and if anything worsens, we will address it.

The Fed did not respond to a set of economic data but kept its options open in terms of monetary policy actions. Because we can get more information before the next meeting. But if our economy is not overheating, we should not actually tighten or restrict.

Daly, also a voting member this year, pointed out that US employment remains robust, and they will wait for more data before taking action. The FOMC will maintain an open attitude towards rate cuts at the next meeting.

Fed officials will spare no effort to achieve the central bank's price stability and employment goals, but we will consider the issue from a holistic perspective. Before taking action, we will consider all information.

If we only react to one set of economic data, we are almost always wrong. The rise in the unemployment rate in July is largely due to temporary layoffs and an oversupply of labor in economic activities, especially due to an increase in immigrants, rather than widespread permanent layoffs.

Behind the non-farm payroll report, we have more confidence that economic growth is slowing down but will not plummet off a cliff.

Daly also noted that Fed officials are monitoring signs of further slowing in the labor market and the potential rise in inflation, and will support rate hikes after waiting for more data.

In order to maintain a balance between the two goals of employment and inflation, interest rates need to be adjusted. Of course, everyone wants to know when and by how much rates will be adjusted. This is the value of collecting more information.

Before the September monetary policy meeting, the Fed will be able to collect August non-farm payroll data and July consumer price index data to prepare for the next steps in interest rate policy changes