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Following the last Federal Open Market Committee meeting, chairman Jerome Powell left the door open for holding interest rates where they are<\/a>\u2014at <\/a>5.25%-5.50%\u2014until December before beginning to bring them down.<\/p>\n But Friday\u2019s job report came in far cooler than expected. The U.S. added only\u00a0114,000 jobs in July, the Bureau of Labor Statistics said on Friday, well below expectations of approximately 175,000. The unemployment rate went up to 4.3% on the expectation that it would stay flat at 4.1%.<\/p>\n Now questions are mounting as to whether the Fed has left it too late.<\/a><\/p>\n International markets\u2014looking nervously at the world\u2019s biggest economy\u2014have been tumbling ever since: At the time of writing Japan\u2019s Nikkei 225 is down more than 12%<\/a>, its worst day since the \u2018Black Monday\u2019 of 1987. Europe\u2019s regional Stoxx 600 is down 2.55%<\/a> at the time of writing with U.S. futures also taking a hit.<\/p>\n The unexpected drop in the jobs number caused analysts to quickly revisit their projections for the rest of the year.<\/p>\n Previously Bank of America<\/a> had been certain the first cut would come in December but on Friday the lackluster jobs report was enough to bring its expectation forward<\/a> to September.<\/p>\n \u201cThe bottom line is that the\u00a0weaker-than-expected\u00a0July\u00a0employment report\u00a0led us to change our baseline expectation for the first Fed cut from December to September,\u201d wrote BofA\u2019s U.S. economics team in a Friday note seen by Fortune<\/em>, adding it had \u201clocked in\u201d the cut.<\/p>\n \u201cOverall, the\u00a0labor market is\u00a0cooling, but\u00a0without a sharp slowdown,\u201d said analysts Michael Gapen, Aditya Bhave, Stephen Juneau, Shruti Mishra, and Jeseo Park.<\/p>\n The economists point out that Hurricane Beryl in Texas meant 436,000 nonagricultural workers said they were employed but unable to work because of bad weather.\u00a0<\/p>\n \u201cThe increase in the number of unemployed this month is due to job losers on temporary layoff versus other job losers,\u201d the group wrote.\u00a0\u201cHence, we don\u2019t think 114k payrolls is the new trend. The three-month moving average is closer to 175k\u00a0which\u00a0is more likely where the trend is.\u201d<\/p>\n While the jobs report, in Bank of America\u2019s opinion, isn\u2019t as big a blow as it may initially appear the institution still expects the Fed to cut by 25bps in September.<\/p>\n The cuts will continue until rates hit the range of\u00a03.25-3.5%, the analysts said: \u201cIf the economy is cooling faster than we or the Fed anticipated, then it would point to a lower need for a higher-for-longer policy stance.\u201d<\/p>\n Likewise UBS is calling for an acceleration in cuts. <\/p>\n In a note seen by Fortune<\/em> published Friday the bank\u2019s senior U.S. economist, Brian Rose, wrote: \u201cWith the unemployment rate above and core PCE inflation now below the\u00a0Fed\u2019s year-end forecasts, we believe that the balance of risks favors more aggressive action by the\u00a0Fed. <\/p>\n \u201cWe are changing our base case to rate cuts of 50 basis points in September and 25 basis points each in November and December, for a total of 100 basis points by year-end.\u201d<\/p>\n With analysts further firming up their stance for a cut, Wells Fargo<\/a> has warned if Powell doesn\u2019t make his move then Wall Street will react abruptly. <\/p>\n Mike Pugliese, senior economist at Wells Fargo, told Fortune<\/em> even prior to the jobs report: \u201cBased on what we know now, no rate cut in September would come as a major surprise to us and to financial markets. Financial conditions likely would tighten if the FOMC adopted an unexpectedly hawkish stance over the next seven weeks.\u201d<\/p>\n July\u2019s jobs report also ticked over a metric which economists have been nervously watching for months. <\/p>\n The Sahm Rule<\/a> in the past has been fairly accurate in signalling when the U.S. is about to head into a recession.<\/p>\n The metric looks at two factors: the current three-month moving average of U.S. unemployment and the lowest three-month moving average of U.S. unemployment over the past year. If the current average is higher than the lowest average by more than half a percentage point, the American economy is headed for a recession.<\/p>\n Up until last month, the index had been below 0.5%. However, in July it ticked up to 0.53%.<\/p>\n That said, the creator of the rule itself, Claudia Sahm, said \u201cno one should be in panic mode.\u201d<\/a><\/p>\n \u201cThis time really could be different,\u201d she told Fortune<\/em> last week. \u201c[The Sahm Rule] may not tell us what it\u2019s told us in the past, because of these swings from labor shortages, with people dropping out of the labor force, to now having immigrants coming lately.\u201d<\/p>\n But not everyone received the \u201cdon\u2019t panic\u201d memo.<\/p>\n While a range of factors has contributed to the global sell-off in equities (oil prices, geopolitical tensions, discrepancies between foreign exchange rates<\/a> making deals less lucrative), concerns about the U.S. economy entering a recession have not helped.<\/p>\n Ahead of the FOMC meeting at the end of July, former president of the Federal Reserve Bank of New York Bill Dudley said the Fed need to\u00a0cut rates as soon as possible<\/a>.<\/p>\n Now names like Tesla<\/a> CEO Elon Musk and Pershing Square founder Bill Ackman are asking the same question. <\/p>\n \u201cThe Fed needs to drop rates,\u201d Musk wrote on social media platform X<\/a> yesterday. \u201cThey have been foolish not to have done so already.\u201d<\/p>\n Likewise Ackman\u2014who has been pushing for cuts since late last year<\/a>\u2014wrote early on Monday: \u201cThe Federal Reserve was too slow to raise rates. Now it is too slow to lower them.\u201d<\/p>\n The Federal Reserve was too slow to raise rates. Now it is too slow to lower them.<\/p>\n \u2014 Bill Ackman (@BillAckman) August 5, 2024<\/a><\/p><\/blockquote><\/div>\nSahm signals recession<\/h2>\n
Market upset<\/h2>\n
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