August 28, 2024: Rate Cuts Are Coming… But How Many?

Last Friday in Jackson Hole, Federal Reserve Chair Jerome Powell made clear that the Federal Reserve will move its target interest rate lower next month. This move will come after the Federal Reserve has held its target rate at a range of 5.25% to 5.50% for over a full year. During this period, the U.S. economy posted an average GDP growth of 3%, inflation receded closer to the Federal Reserve’s 2.0% target, and monthly payrolls grew by an average of 207,000 per month.

Why act now? On August 2^nd, the BLS released its report on July payrolls, which slowed weaker job growth, slowing wage growth, and increasing unemployment. That report heightened the Federal Reserve’s sensitivity to the job market and turned its attention from taming inflation to promoting maximum employment. As Chair Powell noted on Friday, Federal Reserve officials “do not seek or welcome further cooling in the labor market.”

Since the July payrolls report and Chair Powell’s speech, investors have renewed their confidence that interest rates will fall sharply. This confidence implies that the job market will continue to slow. Over the next few weeks, reports on the labor market will command investor attention—particularly the August jobs report released on September 6^th. While rate cuts are certainly coming, the extent to which those cuts match investor expectations will depend on how the job market unfolds.

Weekly Market Update: August 28, 2024