August slump clears the way for rate cuts this month

Commenting on last week’s US non-farm payrolls data, David Rees, Head of Global Economics, Schroders, said:

"The continued slump in US employment growth in August clears the way for the Fed to cut rates later this month.

"But while the odds are now stacked firmly in favour of imminent rate cuts, the Fed will need to tread carefully. After all, most other labour market measures have held up well and changes to immigration policy are likely to restrict the supply of workers in the future. With the broader economy seemingly rebounding now the most pressing policy uncertainties have passed, it may not be long until hiring picks up again.

"More generally, the strong performance of the US economy in recent years means that twin monetary and fiscal stimulus are more likely to fuel a pick-up in inflation than real GDP growth next year – and that is before the inflationary impact of tariffs is considered. Even though the Fed is highly likely to cut rates this month, market pricing for the fed funds rate to fall all the way to 3% next year still seems optimistic."