Policy mistake already made? Analysts urge the Fed not to "sleepwalk" and cut interest rates early
Despite Amundi Asset Management predicting a soft landing for the US economy, analyst Kenneth Akintewe believes that the US economy still faces long-term slowdown risks in 2025. He questions whether the Fed's policies are flawed, mentioning that recent revisions to non-farm payroll data indicate economic weakness. He points out that the Fed needs to timely ease monetary policy, and that policy changes take time to show effects. Recent data supports the possibility of a slight rate cut, with the market believing there is close to a 70% probability of a 25 basis point cut this month
According to the Zhitong Finance and Economics APP, despite the UK investment company Abrdn predicting a soft landing for the US economy, Kenneth Akintewe, the head of Asian sovereign debt at the company, stated that there is still a long-term risk of slowdown in the US economy by 2025.
On Monday, Akintewe raised a question in an interview: "Has the Federal Reserve already made a policy mistake as if sleepwalking?"
He mentioned economic data such as non-farm payrolls, noting that these data were later revised to reflect a weak economic situation. In August this year, the US Department of Labor reported that from April 2023 to March 2024, the US economy created 818,000 fewer jobs than initially reported.
As part of the preliminary annual benchmark revision to non-farm payroll data, the US Bureau of Labor Statistics stated that from April 2023 to March 2024, actual job growth was nearly 30% lower than the initially reported 2.9 million.
Akintewe said, "Whether the economy is weaker than what the overall data shows, (the Fed) should have eased monetary policy by now?"
He added that changes in Fed policy take time to have an impact on the economy, "So, if the economy is weaker than what the overall data shows, they will need to accumulate enough easing, you know, 150 to 200 basis points, and that will take time."
"Once you have taken so much easing, it will take at least six to eight months to see the effects." A Fed spokesperson declined to comment on this.
Data released by the US last Friday showed that the Fed's favored inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose by 0.2% last month, in line with expectations.
This data seems to support a smaller rate cut, as US interest rate futures indicate that the likelihood of a 50 basis point rate cut by the Fed in September has decreased.
Data from the CME Fedwatch Tool shows that currently, the market believes there is a close to 70% chance of a 25 basis point rate cut at the Fed's meeting this month, with a 31% chance of a 50 basis point cut.
