Veteran Market Strategists: No Need for Further Aggressive Rate Cuts by Federal Reserve
Following the release of strong US jobs data, market experts are convinced that the Federal Reserve has no reason to implement further aggressive rate cuts. The latest nonfarm payrolls data revealed that employers added 254,000 jobs in September, exceeding economists’ expectations of 150,000. The unemployment rate also dropped to 4.1%, down 0.1 percentage point.
David Roche, founder and strategist at Quantum Strategy, believes the Fed’s decision to lower its key overnight borrowing rate by a half percentage point last month was a hasty move. He argues that the latest jobs data makes the Fed’s “jumbo interest rate cut look silly, populist, and panicky.” Roche suggests that the central bank should not implement further large rate cuts unless a severe crisis occurs, such as an escalation of the Middle East conflict.
Roche warns that the Fed’s move could have negative consequences, giving a false impression of the US economy’s fragility and creating market instability. He predicts that the Fed will not lower interest rates below 4% or 3.5%, as the economy is robust and firms can earn sufficient profits without needing lower interest rates.
Bob Parker, senior advisor at the International Capital Markets Association, agrees that the case for aggressive rate cuts is nonexistent. He notes that the probability of the US economy entering a recession in the near future is close to zero, and headline and core inflation will remain above the Fed’s 2% target.
Dave Pierce, director of strategic initiatives at GPS Capital Markets, also believes that a 50-basis-point rate cut is unlikely, given the recent improvement in the economy. However, he cautions that residual negative sentiment surrounding the US economy, particularly regarding inflation, may impact market sentiment.
Overall, market strategists are convinced that the Fed should adopt a more cautious approach to rate cuts, given the strong jobs data and the economy’s resilience.
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