⚡ Is the Fed Too Late to Prevent a Recession?
Macro Mornings
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THE FED’S BALANCING ACT: TIMING IS EVERYTHING
Sahm Rule Alarm: With the July unemployment rate rising to 4.3%, the Sahm rule was triggered, signaling a potential recession. Historically, this rule has predicted every US recession since 1970, raising concerns about whether the Fed is too late in adjusting its monetary policy.
Diverging Opinions on Labor Market: Some experts, like Bill Dudley, believe the Fed might be behind the curve, while others, such as David Mericle, argue that labor demand is still strong, with job growth averaging 160,000 per month, higher than the 114,000 added in July.
CONSUMER STRENGTH VS. MARKET FEARS
US GDP Growth Holds Steady: Despite labor market jitters, Q2 GDP grew at 3.0%, and consumer spending increased at an annual rate of 2.9%, suggesting that the US economy remains robust in the face of rising unemployment.
Equities Rebound: The S&P 500, after a sharp drop following the July jobs report, fully recovered and showed a 20% year-to-date gain, reflecting optimism in corporate earnings and hopes of future Fed rate cuts.
WHAT’S NEXT? RATE CUTS AND RECESSION RISKS
Rate Cuts Expected: Markets anticipate a 25 basis point rate cut in the September FOMC meeting, with some analysts projecting 50 basis points if labor market conditions worsen.
Recession Probability: Current projections estimate a 20-25% chance of a recession over the next 12 months, with former Fed president Bill Dudley placing the odds as high as 50-60% if the labor market continues to weaken.
Alessandro
Founder of Macro Mornings
Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.