Despite the optimism from some economists and Wall Street experts, economist Oren Klachkin believes that elevated interest rates, restrictive Federal Reserve policy, and tight lending standards will lead to a mild recession in late 2023 due to decreased consumer spending and slow hiring, although he acknowledges that the definition of a recession may not be met due to some industries thriving while others struggle.
Federal Reserve Chair Jerome Powell stated that inflation remains too high and the central bank is prepared to raise rates further if necessary, although he did not suggest a tougher stance, leading to the possibility that the Fed may not increase its benchmark target range. However, economists argue that the Fed's current policy is already too tight and the tightening of credit may lead to a recession.
Employment growth in the US likely cooled and wage increases moderated in August, reducing the urgency for another interest-rate hike by the Federal Reserve and tempering inflation risks.
Federal Reserve Chair Jerome Powell's recent speech outlined three tests for incoming data to prevent further rate hikes, and the Job Openings and Labor Turnover survey revealed a decrease in job openings, leading to a rise in the S&P 500 and a decline in the 10-year Treasury yield.
The Federal Reserve's monetary tightening policy has led to a surge in mortgage rates, potentially damaging both the demand and supply in the housing market, according to Mohamed El-Erian, chief economic advisor at Allianz.
The US jobs data for July suggests a cooling employment market, with a drop in labor demand and easing of hiring conditions, which could help lower inflation without a significant rise in unemployment rates.
The Federal Reserve meeting in September may hold the key to the end of the tightening cycle, as markets anticipate a rate hike in November, aligning with the Fed's thinking on its peak rate. However, disagreement among Fed policymakers regarding the strength of the economy and inflation raises questions about the clarity and certainty of the Fed's guidance. Market skeptics remain uncertain about the possibility of a "soft landing," with sustained economic expansion following a period of tightening.
The August jobs report is highly anticipated as investors assess the health of the labor market amidst rising interest rates and inflation, with projections indicating an increase in hiring and a steady unemployment rate, but potential disruptions from ongoing strikes and bankruptcies could affect the data. The report is closely watched by the Federal Reserve for signs of labor market softening as they grapple with inflation, and while the labor market has remained tight, there are indications of a gradual slowdown. Job openings have decreased, along with resignations, pointing to a labor market that is cooling.
The US added 187,000 jobs in August, but the unemployment rate rose to 3.8 percent, indicating a plateau in the labor market as the Federal Reserve considers another interest rate hike.
The US job market shows signs of slowing but remains resilient, with 187,000 jobs added in August and a rise in the unemployment rate to 3.8%, as more people actively look for work. Wage gains are easing, signaling a potential slowdown in inflation, and the Federal Reserve may decide against further interest rate hikes.
The August employment report showed an increase in unemployment and a jump in the number of workers unemployed for more than 27 weeks, indicating a normalization of the labor market; however, the report also highlighted the potential for further job gains in September as new labor force entrants search for employment.
Despite weakening economic growth, the unemployment rate remains low, which is puzzling economists and could lead to a "full-employment stagnation" scenario with a potential recession and low unemployment rates, posing challenges for the Federal Reserve and the overall economy.
Economists at the Chicago Fed argue that recent rate increases have brought inflation on a path to 2% without causing a recession, creating a "goldilocks" scenario for risk-taking in financial markets.
Summary: The markets have experienced various shocks this week, with the most significant one coming from the Federal Reserve, making labor data more crucial than Fed discussions.
