The Fed met this week and, as expected, left interest rates unchanged, paving the way for the first cut to come in September.  However, recent weakening economic data and disappointing earnings announcements have stoked fears that September may be too late, and that the Fed has been too slow to cut rates.  Stock markets were down Thursday and Friday as a result.

Forecasters now believe there is a 68.5% chance of a 0.50% rate cut in September and a 31.5% chance of a 0.25% cut.  This shows that markets believe the Fed is (again) behind and playing catch-up.

Source:  https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

 

As an example of weaker economic data, the July jobs report came out today and showed that 114,000 jobs were created in July versus a forecast of 185,000.  For comparison, 179,000 jobs were created in June.

We should remember that the labor market was WAY too hot and became a major inflation risk.  We needed slower job creation and we now have it.  The question the market is wrestling with now is, “Will the weakening of the economy stabilize, or could we slip into recession?”

Consistent with slower job creation, the unemployment rate ticked higher to 4.3% from 4.1% in June.

The performance of the economy and the stock market in months leading up to presidential elections have historically proven to be a significant factor in election outcomes.  Look for a lot more misinformation from both sides regarding the economy between now and November.

The Atlanta Fed currently expects a reasonable economic growth rate of 2.5% for the US economy this quarter.

Have a great weekend.

 

Jack C. Harmon II, CFP^®, CIMA

Principal, Harmon Financial Advisors

Registered Principal, Raymond James Financial Services

 

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