Expectations are growing that the Federal Reserve will cut interest rates next month.
On Friday, Yahoo Finance reported that investors are increasingly confident the Fed will lower rates not only at next month’s Federal Open Market Committee (FOMC) meeting but also later this year, as signs of a slowdown in the U.S. labor market intensify.
The U.S. Department of Labor announced on Thursday that the total number of continuing unemployment claims reached 1.974 million, the highest level since November 2021.
Thomas Simons, U.S. economist at Jefferies, noted, “The trend of employment risk is growing.”
Furthermore, the final estimate for U.S. economic growth in the first quarter was revised down to -0.5% year-over-year, lower than the previous estimate of -0.2%.
The CME FedWatch Tool showed the probability of a July rate cut has surged from 12.5% last week to 27%.
The likelihood of a September cut also jumped from 64% to 92%.
On Monday, Federal Reserve Governor Michelle Bowman stated in a speech that, despite overall stability in the job market, there are signs of potential weakness. She added that she would support a July rate cut if inflation remains contained.
However, Fed Chair Jerome Powell emphasized during a House hearing on Tuesday that the Fed will closely monitor the situation before making any decisions on interest rates.
With no FOMC meeting scheduled for August, Wall Street economists are raising the possibility of a rate cut either in July or September.
Nancy Vanden Houten, senior U.S. economist at Oxford Economics, stated that recent employment data indicates a deteriorating labor market.
She added that while the job market is not weak enough to force a rate cut before December, if a cut does occur, it would likely start with a reduction of 0.5 percentage points.
