Fed Set to Make Elusive Economic Soft Landing in 2024 After Great Jobs Report in September
A recruitment sign is posted on the outside of Urban Outfitters at Tysons Corner Center shopping center on August 22, 2024 in Tysons, Virginia.
Anna Rose Layden | Getty Images
September’s massive payroll boost lifted the US economy out of the shadows of recession and gave the Federal Reserve a fairly open path to a soft landing.
If that sounds like a Goldilocks scenario, it’s probably not far off, even with persistent inflation concerns straining consumer wallets.
A gravity-defying jobs market, at least slowing price growth and falling interest rates have put the macro picture in a pretty good place for now – an important juncture from a critical point of view. policy and politics.
“We were expecting a soft landing,” Beth Ann Bovino, chief economist at US Bank, said after Friday’s nonfarm payrolls report. This makes us even more confident that it appears to remain the same.” “It also increases the likelihood of a no-landing, meaning economic data for 2025 is even stronger than we expected.”
The number of jobs is certainly higher than most people think, with companies and governments combined salary increase by 254,000blowing away the Dow Jones consensus at 150,000. That’s a big step up even from August’s upwardly revised numbers and reverses a trend that started in April of decelerating employment numbers and growing concerns about a global recession. widespread – or worse.
Additionally, it virtually eliminates any possibility that the Federal Reserve will repeat its policy. cut interest rates by half a percentage point from September any time soon.
In fact, futures markets reversed positioning after the report, pricing in an almost certain probability of just a quarter-point move at the November Fed meeting, followed by another quarter-point move. in December, according to CME Group. FedWatch measuring machine. Previously, markets had been looking for a half-point cut in December, followed by an equivalent quarter-point cut at each of eight Federal Open Market Committee meetings in 2025 .
Not a perfect picture
Not anymore, however, as the Fed, to avoid any further disappointment from the labor market, may set a moderate pace in its easing cycle.
“If we continue to see a stronger-than-expected economy, this could give the Fed reason to slow the pace of rate cuts until 2025 with the odds of exiting there being higher than one slightly above current forecasts, all because the economy maintains its strength,” Bovino said. “That would be good news for both the Fed and the economy.”
To be sure, there are still some weaknesses in the jobs picture.
More than 60% of the growth in September came from the usual sectors – food and beverage establishments, health care and government – which were all beneficiaries of the huge fiscal boost that pushed up the deficit 2024 budget on the verge of 2 trillion USD.
There are also some technical factors in the report, such as a low response rate from survey participants, that could cast some clouds on Friday’s sunny report and lead to arrive downward revision in the following months.
But more broadly, the news is good and raises questions about how aggressive the Fed will need to be.
Question for the Fed
For example, Bank of America economists asked “Is the Fed panicking?” in a client note mentioned a cut of half a percentage point, or 50 basis points, in September, while others wondered about swings and miscalculations by Wall Street experts. David Royal, director of finance and investments at financial services firm Thrivent, speculated that it was “doubtful” the Fed would have cut so much “if it had known this report would be so strong.”
“The question is why do people keep making mistakes?” said Kathy Jones, chief fixed income strategist at Charles Schwab. “Why can’t we get this number right with all the information we have?”
Jones said the Fed will face a dilemma in finding the right policy response. The FOMC’s next meeting will take place on November 6-7, immediately after the US presidential election and after a period of five weeks there will be more information to process.
Some comments after the meeting suggested that the Fed may have to increase its estimate for a “neutral” interest rate that neither promotes nor constrains growth, a sign that the benchmark interest rate will stabilize at a higher level than with before.
“What is the Fed going to do about this? Certainly, 50 basis points will not be given for the next meeting. I don’t think there will be any case made there.” “Do they pause? Do they do it 25 more times? [basis points] Because they are still far from neutral? Are they just weighing this against other data that may not be as strong? I think they have a lot of work to do.”
In the meantime, however, officials can be pleased to know that the economy is stable, the labor market is not in nearly as much trouble as suspected, and they have time to consider their next move. according to your own.
“We have seen a pretty impressive economic performance over the past few years, despite some opposition and lackluster consumer sentiment,” said Elizabeth Renter, senior economist at NerdWallet. bland”. “In an election year, passions run high and every economic report or event can cause a backlash. But economic aggregates tell us the US economy has been and is strong.”
