The Fed's monetary policy decision may soon shift to an easing state to support employment growth in the United States. This is a scenario that many financial experts highly value in the context of increasingly evident economic slowdown risks.

Huatai Securities' research on fixed income indicates the risk of a slowdown in employment growth in the United States, suggesting the Fed may adjust its monetary policy towards easing. The prediction of a 25 basis point rate cut in September and the possibility of two additional cuts in the fourth quarter is a scenario that the market is paying attention to.

MAIN CONTENT

  • The risk of a slowdown in employment growth in the United States is increasing.

  • The Fed tends to adjust its policy towards easing.

  • The likelihood of two rate cuts in the fourth quarter is higher than one.

What is the current state of employment growth risk in the United States?

Huatai Securities' fixed income research asserts that the current state of the U.S. economy signals risks of a slowdown in employment growth. This is a key factor influencing the risk balance and future monetary policy decisions.

When employment growth is threatened, policymakers may have to intervene to stabilize the economy through stimulus solutions. This premise was reinforced by the recent comments of Fed Chair Jerome Powell, increasing expectations that policy will trend towards being more dovish.

This means the risk of recession in the labor market and changes in fiscal policy are necessary to alleviate negative pressure on the economy.

How will the Fed's monetary policy change in the short term?

The market is currently trading based on the assumption that the Fed will pursue easing policies, as reflected in the likelihood of a 25 basis point rate cut in September. To recover and maintain economic growth, the Fed may implement more rate cuts than initially expected.

This scenario has strong support from many analysts and has been reflected through asset price movements, where all asset classes, except for the USD, are trending upwards. This reflects the market's expectation of a more dovish monetary policy from the Fed in the near future.

Easing policies will help stimulate investment and spending, alleviating pressure from the declining labor market.

What is the impact of the Trump administration on Fed policy?

The impact from the Trump administration is assessed to potentially push the Fed's easing cycle beyond market expectations. Policy adjustments may be decisive to support the economy amid many macro pressures.

Considering public opinion and political factors in the cabinet may become a driving force for the Fed to take strong rate-cutting steps to stabilize the U.S. economy.

Therefore, the scale and frequency of easing could be higher, contributing to creating more favorable market conditions than initially predicted.

"Current economic developments and the impact of political factors indicate that the Fed has ample motivation to promote a larger easing policy than the market expects, to ensure stability and long-term growth."
– Jinshi, Fixed Income Research Expert at Huatai Securities, 23/8/2023

Frequently Asked Questions

When does the Fed plan to reduce interest rates?

The Fed is expected to cut interest rates by 25 basis points in September and may continue to reduce them two more times in the fourth quarter of this year.

What are the main risks to employment growth in the United States?

The main risk is the slowdown in employment growth, which increases the pressure of economic decline and requires the Fed to adjust its monetary policy accordingly.

How do financial assets react to Fed policy predictions?

Most assets, except for the USD, are appreciating due to expectations that easing policies will boost the market.

What is the impact of the Trump administration on Fed policy?

The Trump administration may push the Fed to act more aggressively in the easing cycle to support the U.S. economic recovery.

Source: https://tintucbitcoin.com/huatai-fed-giam-lai-suat-thang-9/

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