Title: Fed Likely to Downshift to Smaller Cuts, But Economy's Future Depends on Labor Market - Morgan Stanley Analysts Warn
Investing.com -- The Federal Reserve is expected to make smaller cuts at its remaining two policy meetings, but a potential downturn in the labor market could lead to a larger rate cut to protect the economy, according to analysts at Morgan Stanley. The recent economic data in the US suggests that two 25 basis point cuts are on the horizon, but a weaker job market could force the Fed to take a more dovish approach.
Analysts are keeping a close eye on the upcoming September payrolls report, as sub-100,000 job gains could pose a risk to the current expectations for two 25 basis point cuts. Economists are predicting that the economy added 144,000 jobs in September, with the unemployment rate remaining steady at 4.2%.
The Fed surprised many by delivering a 50 basis point cut in September, and members have emphasized that future rate cut decisions will be heavily influenced by the state of the labor market. While there are concerns about a potential economic slowdown, strong consumer spending has provided some reassurance that a recession can be avoided.
Morgan Stanley expects real GDP to grow by 2.2% in the fourth quarter compared to the same period last year, and inflation is showing signs of moderation. The core personal consumption expenditures price index is slightly below expectations, indicating that inflation is under control.
In conclusion, the Fed's upcoming decisions on interest rates will be crucial for the economy's future trajectory. Investors should pay close attention to labor market data and consumer spending trends to gauge the likelihood of further rate cuts and potential economic outcomes. It is essential to stay informed and adjust investment strategies accordingly to navigate through these uncertain times.