Bassanese Bites: Time has come – August 26 2024
Global markets
The global equity rebound continued last week, buoyed by confirmation of a US rate cut next month by Fed chair Jerome Powell.
Markets waited all week for Powell’s speech at the Jackson Hole central bank talkfest, and were not disappointed. Powell declared “the time has come” to start easing rates, which makes a move next month all but certain. At this stage, however, a 0.25% rather than 0.5% rate cut seems likely – given the continued underlying health of the economy and the risk that a larger move could have a perverse negative impact on market sentiment.
That said, any notable slippage in economic activity indicators between now and the next Fed meeting on September 17-18 could easily bring a 0.5% cut back into play. Indeed, Powell suggested labour market conditions were now modestly softer than in the immediate pre-COVID period – when inflation was running below 2%. Accordingly, the Fed does “not seek or welcome further cooling in labour market conditions”. Unlike in Australia, the US central bank is happy for the unemployment rate to stay where it is – currently at 4.3%.
Supporting the Fed’s more sanguine view of the labour market was news last week that, due to data revisions, the US economy created 880k fewer jobs over the year to March than previously thought. To be sure, overall job growth of 2 million was still very solid, but more in line with the growth in the labour force – and so consistent with a better balance between demand and supply. Despite the recent lift in the unemployment rate, moreover, US weekly jobless claims last week remained reassuringly low.
In other key global news, European wage data and Canadian inflation data both continued to ease – supportive of both their central banks continuing to cut rates in the months ahead.
