J.P. Fed needs the US labour market to keep softening

J.P. Fed needs the US labour market to keep softening

September 2, 2024

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US financial conditions loosened significantly over the summer, as market expectations for interest rate cuts increased.

Weak July payrolls solidified the Federal Reserve’s (Fed) shift in focus from upside inflation risk to downside labour market risks, and Chair Powell’s speech at Jackson Hole made it clear that the Fed wants to start normalising policy.

September looks a likely starting point, but the speed and magnitude of any easing are still uncertain. The market is pricing 100 basis points (bps) of cuts by Christmas and is weighing up a 25 or 50bp move in September.

With economists polled by Reuters expecting August payrolls to recover back to 160,000, a clearer deterioration in the labour market will be required over the coming months for current market pricing to be justified.

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