US policymakers have noted a cooling in the labour market that could accelerate into something more dire in the absence of a policy shift.
Federal Reserve chairman Jerome Powell touched off intense speculation about the size of a September rate cut when he said two weeks ago that “the time has come” to ease policy.
Policymakers have kept the Fed’s benchmark borrowing rate in the current 5.25-5.50 per cent range since July 2023, after an aggressive rate-hiking campaign that began 18 months earlier in response to a surge in inflation. “It is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate,” New York Fed president John Williams said, at a Council on Foreign Relations event.
Chicago Fed president Austan Goolsbee, who has for months signalled he thinks rates need to come down, also said he wants to calibrate policy based on data as it comes in. The data indicates softening but not deterioration, and the economy does not look to be headed to recession, he said. Still, “the current batch of data no longer requires patience, it requires action.”
Traders of futures that settle to the Fed’s policy rate are now pricing a 75 per cent chance that the US central bank will start by cutting its policy rate by 25 basis points.
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