Federal Reserve Chair Jerome Powell’s recent backing of a "wait-and-see" approach to future policy actions is unlikely to change despite weak U.S. labor market figures, according to analysts at Barclays.
In a note, the bank said there have been few indications that the more hawkish members of the rate-setting Federal Open Market Committee are "changing their tune," adding that a borrowing cost cut at the central bank’s September gathering remains a "close call."
They stuck to their forecast for the Fed to roll out one reduction this year, but not until its meeting in December. More guidance is anticipated to come from a much-anticipated economic symposium in Jackson Hole, Wyoming later this week, at which Powell will speak on Friday, the analysts said.
For his part, Powell has largely stuck to his stance that a cautious attitude to any rate cuts is warranted, particularly with the impact of sweeping U.S. tariffs on the wider economy still emerging and widely uncertain. Fed officials and economists have expressed worries that the levies will drive up inflation and weigh on growth.
Price pressures have stayed broadly tepid, although early indications that the duties could be beginning to bleed into cost inflation have emerged. Meanwhile, the economy returned to growth in the second quarter, but this was partially linked to an ebbing in imports following a surge in the first quarter prior to the implementation of elevated "reciprocal" tariffs.
"A reiteration of Powell’s earlier comments would likely reduce expectations of a September cut, whereas a new emphasis on a weakening labor market would likely cement expectations for one," the Barclays analysts said.
Chances that the Fed will slash rates by 25 basis points at its September 16-17 meeting now stand at just under 85%, according to CME’s FedWatch Tool.
Traders are now gearing up for the release on Wednesday of minutes from the Fed’s last policy gathering in July, when the central bank chose to keep borrowing costs steady at a range of 4.25% to 4.5%.
Yet the decision was met with the rare dissent of two Fed officials for the first time in decades. Fed Governor Christopher Waller and Fed Vice Chair of Supervision Michelle Bowman both advocated for a rate reduction, arguing that it was necessary to help prop up a softening labor market.
Subsequent data has shown that U.S. jobs growth was significantly weaker than anticipated last month, while the totals for June and May were revised sharply lower. Meanwhile, retail sales rose strongly, following an unexpectedly steep uptick in producer prices.
Source :
https://www.investing.com/news/economy-news/barclays-backs-call-for-fed-rate-in-december-awaits-powells-jackson-hole-speech-4197072
