Patek Philippe: Weak demand in the US labor market, expected to cut interest rates three times by 25 basis points each within the year
Economist Cui Xiao from Swiss Pictet Wealth Management predicts that the US labor market will experience a moderate adjustment, with the unemployment rate rising from 3.4% in April 2023 to 4.2% in August 2024. She believes that the labor market demand is weak, and expects the Federal Reserve to cut interest rates by 25 basis points in September, November, and December this year. The current monetary policy is too tight, which may lead to larger rate cuts. The market sees a high likelihood of rate cuts, and concerns about economic growth will persist
According to the Zhitong Finance APP, Cui Xiao, a senior economist at Pictet Wealth Management in the United States, predicts a mild adjustment in the U.S. labor market. The recent unemployment rate has risen from 3.4% in April 2023 to 4.2% in August 2024, driven mainly by supply rather than demand factors. She stated that the recent increase is due to labor force entry without immediate employment, reflecting weak labor market demand. Unless there is a major financial shock, the policy normalization cycle is still expected to begin in September, November, and December of this year, with a 25 basis point rate cut each time.
With inflation concerns easing and the labor market rebalancing, the current monetary policy stance of the Federal Reserve is overly tight. The weak labor demand is insufficient to absorb the temporarily increased labor supply, posing a slow-developing issue that the Fed may address by easing policy.
However, the preconditions for more accommodative policies are rising, indicating the possibility of larger rate cuts and a quicker return of policy rates to neutral levels. If evidence of weak labor demand or increased layoffs emerges, the Federal Open Market Committee will respond forcefully.
She noted that the current environment of low hiring and low layoffs may be in a fragile balance state because, firstly, this makes the labor market more vulnerable to shocks; secondly, even if labor demand remains strong, the volatility and noise in monthly employment growth may sometimes lead to a significant decline in wage levels. A major concern is whether weak hiring will lead to cost-cutting in labor and widespread layoffs, triggering a negative feedback loop between job reductions and expenditure reductions that will make it difficult for policymakers to counteract.
Currently, the federal funds futures market is pricing in a rate cut of approximately 32 basis points in September, and cuts of around 40 basis points in November and December, reflecting the market's belief that there is a high likelihood of the Fed shifting towards larger rate cuts later on, and concerns about economic growth may persist for some time