Economic Analyst: Fed will not push "panic button" and implement drastic rate cut, economist says

Federal Reserve Chairman Jerome Powell addresses reporters following the release of its policy decision to keep interest rates at current levels on September 20, 2023 at Washington Federal Reserve’s campus in U.S. REUTERS/Evelyn Hockstein | ReutersInvestors are eagerly awaiting an announcement by the U.S. Federal Reserve this month, with Carl Weinberg of High Frequency Economics noting a deep cut was unlikely. Policymakers at this month’s Fed meeting on September 17-18th are widely anticipated to begin cutting interest rates as opposed to tightening policy following pandemic fears – signalling an expected change from post-pandemic policy tightening which had raised worries of recession or depression. Recession.. “Nothing that I can imagine has occurred that would cause the Federal Reserve to act with urgency with regards to rate cuts of 50 basis points or greater,” noted Weinberg of High Frequency Economics on CNBC “Squawk Box Asia,” adding that an economic response will welcome 25 basis point cuts instead. Although hiring has decreased recently, initial claims data show unemployment claims dropping. U.S. jobs also appear to have strengthened overall in November 2015. On Thursday, labor market data gave mixed signals about the state of the economy amid worries that rates had been kept higher for longer than necessary by the Fed. Private sector payroll growth reached its slowest rate since 2021 and raised alarm about potential shifts in labor demand. Weekly unemployment benefit claims also declined when compared to last week, suggesting an improvement. “To move by 50 basis points, what I think it will take is an uptick in unemployment insurance initial claims and evidence of more layoffs happening throughout the economy along with an abrupt decrease in hiring activity – maybe to zero,” Weinberg suggested. Real interest rates have gone up while inflation has decreased over time. “The Fed must take some measures, but not rush into making drastic cuts like 50 basis point cuts,” Weinberg noted. He pointed to how its benchmark borrowing rate, which influences many other rates that consumers pay, sits between 5.25%-5.50% currently; according to other market watchers a 50 basis-point reduction would not be out of place as Wall Street awaits one of the key economic reports this year — August’s employment report. “A looser jobs market enables the Federal Reserve to lessen restrictions in policy rates by up to 50 basis points,” noted Ben Emons of Fed Watch Advisors, and that labor data had recently shown signs of diminishing momentum. Dow Jones estimates nonfarm payrolls to grow by 161,000 in August while unemployment falls to 4.2%.” Recent data, particularly its drastic downward revision to previous job growth numbers, indicates a sharp hiring slowdown that threatens Emons’ forecast of positive nonfarm payrolls edging above 100,000 for 2017. He cautions against taking this number too literally though: the potential “low point” figure still exists for payroll growth under 100,000 is possible according to Emons. “A soft print (100K) would likely damage risk sentiment as investors price in an image of tightening labor markets and growth concerns turning into recession fears,” according to his analysis on Friday. “Let’s assume (later’s) figure triggers an economic contraction, prompting faster Fed action that cements another major bottom in the S&P 500 near or slightly below its 200-day moving average,” according to Jeff Cox of CNBC, who contributed this report.