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Earlier this month, the U.S. Department of Labor reported that job growth slowed in July, with the unemployment rate hitting 4.3%. Highest Rate Since October 2021. Following the weaker-than-expected report, Goldman Sachs lowered the probability of a recession from 15% to 20%. 20% And JPMorgan Chase raised its odds from 25% to 35%.
Based on the new data, some strategists I think the recession will continueBut EY chief economist Gregory Daco said such concerns were “overblown”.
“Labor market conditions have clearly softened, but economic momentum remains strong,” Daco said. Entrepreneur “The U.S. economy continues to advance at a slow to moderate pace,” he said in an email.
Related: ‘The stage is set’: EY senior economist predicts three rate cuts by year-end
The July employment report showed wage growth of 3.6% year-on-year. Smallest increase since May 2021and the economy added 114,000 jobs compared to the previous fiscal year. At least 200,000 people needed To cope with population growth, Mr. Daco is strong July retail sales report It showed that people are still willing to shop and spend money.
Retail sales rose 1% last month, easing “recession fears” and underscoring the “resilience of consumer spending,” he said.
Related: Inflation at three-year low, analysts predict Fed to cut rates next month
Still, Daco predicts the unemployment rate will continue to rise, reaching 4.5% by 2025.
“We expect corporate leaders will continue to moderate wage increases, hire cautiously and make strategic cuts to contain costs,” Daco said.
As a result, he predicted that economic activity will slow through 2025, with high interest rates and slowing income growth making households more cautious about spending.
When will the Fed cut interest rates?
On the business side, high financing costs have forced companies to hire and invest cautiously, but they have not cut or laid off staff in response to the economic climate. The economic uncertainty “reflects the Federal Reserve’s late start in easing policy rather than reflecting any underlying economic weakness,” Daco argued.
That’s a good thing in Daco’s view, because it allows the Fed to adjust policy. Friday speech in Jackson Hole, Wyoming.Federal Reserve Chairman Jerome Powell said it was “time to adjust policy” in response to the cooling labor market. Lowering the Federal Funds Rate It was imminent.
US Federal Reserve Chairman Jerome Powell. Photo: Roberto Schmidt/AFP
The question now is not whether the Fed will cut the federal funds rate in September, but by how much, Daco said, repeating a prediction made by EY senior economist Lydia Boussour. Entrepreneur Last week, three rate cuts of at least 25 basis points (bps) or 0.25 percentage points were expected in September, November and December respectively. 3 scheduled meetings remaining This year.
“The Fed is lagging behind, but Chairman Powell is trying to catch up,” Daco said.
According to a 2024 Gallup poll, Three in five Americans They mistakenly believe that America is in a recession.
Related: Fed keeps rates on hold, expects one rate cut by year-end: ‘We remain very cautious about inflation risks’
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