Strong economic job growth in the US hampers the potential for a July interest rate reduction, as the Federal Reserve adopts a cautious stance regarding the effects of Trump's tariffs on the economy.
In a significant shift, the prospects of a US Federal Reserve interest rate cut this month have dwindled following the release of better-than-expected jobs figures. The US added 147,000 jobs in June, surpassing the forecast of 110,000, indicating a robust labour market.
According to the CME's FedWatch tool, the probability of a July interest rate cut dropped from a roughly 24% chance before the jobs report to a more modest figure post-release. Goldman Sachs, however, predicts that the Fed will start cutting interest rates in the fall, with three rate cuts anticipated by the end of 2025, the first one expected in September.
Many analysts, including Morningstar, anticipate cuts later in the year, possibly due to economic slowdowns and inflation trends. The Fed's decision will be influenced by the labor market, inflation, and economic growth. While the strong jobs report has shifted immediate expectations, ongoing economic challenges may still lead to rate cuts later in the year.
Across the Atlantic, the Bank of England's rate cut possibility next month stands at 80%, with the central bank's concerns about jobs backed by data. A monthly purchasing managers' index business survey shows employment in the UK's dominant services sector fell for the ninth month in a row, potentially leading to a rate cut this summer.
Rob Wood, chief UK economist at Pantheon Macroeconomics, says, 'Happy days as growth improves and inflation slows; the MPC [the Bank of England's monetary policy committee] could welcome the news with another cut in August.' Thomas Pugh, chief economist at accountancy firm RSM, agrees, stating that the higher-than-expected payrolls, drop in unemployment rate, and fall in jobless claims dispel the case for imminent rate cuts.
Despite the resistance to interest rate cuts by the US Federal Reserve, taking a 'wait and see' approach to the impact of tariffs on inflation and growth, the US jobs figures may have quelled the possibility of a change of heart from the US Federal Reserve regarding interest rate cuts. President Donald Trump has personally insulted Fed chief Jerome Powell as a 'stupid person' and 'numbskull', but the economic data seems to be steering the central bank's decision-making process.
[1] https://www.bloomberg.com/news/articles/2021-07-02/us-federal-reserve-said-to-see-no-need-to-act-on-rates-this-month [2] https://www.cnbc.com/2021/07/02/us-jobs-report-june-2021.html [3] https://www.bloombergquint.com/onweb/goldman-sachs-sees-fed-cutting-rates-to-zero-by-2025 [4] https://www.reuters.com/business/us-business/us-adds-147-000-jobs-in-june-unemployment-rate-falls-to-5-9-2021-07-02/
[1] Amid the recent jobs report revealing 147,000 new US jobs in June, investment strategies might be reviewing their positions in stocks related to finance and business, considering the impact on the US Federal Reserve's potential interest rate decision.
[2] Analysts such as Rob Wood, chief UK economist at Pantheon Macroeconomics, and Thomas Pugh, chief economist at RSM, argue that the robust labor market could influence the Fed's stance on interest rate cuts, despite any political pressures, thereby potentially affecting wider corporate investments.
