After July’s poor jobs report in the U.S., all eyes were on August’s report to measure the state of the United States economy, especially considering that speculation about a possible cut to the interest rate by the Federal Reserve has increased since June.
The bottom line is this: in August, the unemployment rate dipped for the first time since March. Experts consider this to be a sign of the U.S.’s job market strength but have also considered it might be a sign of stagnation.
During August, U.S. employers added 142,000 jobs, which is undoubtedly more than the 89,000 that were added in July but is still a modest number. The unemployment rate slightly fell from 4.3 percent to 4.2 percent, which was the highest it had been in three years.
The job market is weakening
These indicators seem to point to the fact that the United States labor market is getting weak. Now, this isn’t necessarily an indicator of a recession or a deep crisis, but it seems to be an undeniable fact.
The continuously cooling figures for hiring in June and July are great arguments for the Federal Reserve to cut its more important interest rate when it meets from September 17 to September 18. These arguments are even more reinforced considering that inflation has once again reached its 2 percent target.
All roads have pointed to the Federal Reserve cutting its interest rate for a while now. The question is, how much will the cut be? According to analysts the two most likely outcomes for a Fed cut would be reducing its benchmark by a typical quarter point, or by an unusually large half-point.
This means that if the Federal Reserve decides to go through the “typical route” it would cut its benchmark interest rate by 0.25 percentage points.
This is a move analysts typically consider to be cautious, given that it aims to moderate growth or address mild economic risks like stagnation in growth or a rise in inflation.
On the other hand, a half-point-cut is a more aggressive measure and usually means that the Federal Reserve is responding to more significant economic challenges, like increased economic stagnation or a recession.
The Federal Reserve is leaning towards a quarter-point reduction to address the U.S.’s job stagnation
Christopher Waller, an economist who has been a member of the Federal Reserve Board of Governors since 2020, explained that the Federal Reserve is leaning towards a quarter-point reduction in a speech he delivered on Friday, September 6.
Waller explained that he does not expect the first cut of the year to be the last one, given that despite current job growth stagnation in the U.S. the Federal Reserve is closing in on accomplishing its long-term goals.
The economist also said, “The prospects for continued growth and job creation are good,” and therefore thinks a quarter-point reduction is the appropriate way to go.
