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The tone of Fed Chairman Powell’s remarks in Zurich was similar to that of his speech in Jackson Hole. Powell repeated the statement that the Fed will ‘act as appropriate to sustain the expansion,’ which indicates that he is leaning toward a September rate cut.
Earlier today, the Employment Report for August showed that the weakness in the manufacturing sector and business investment has spread to employment growth. This strengthens the case for an insurance cut in September, although Powell said that the labor market remained in quite a strong position.
View - Feedback - Loop - Trade - Policy
In our view the feedback loop between trade policy and monetary policy is likely to lead to another insurance cut, probably in October. Meanwhile, the inverted yield curve points to a recession in 2020 that will force the Fed to cut rates all the way to zero before the end of 2020.
This was basically a repetition of the key phrase in his prepared speech at Jackson Hole. This confirms that Powell is still leaning toward a September rate cut. In fact, after another question on monetary accommodation he repeated his ‘act as appropriate to sustain the expansion’-mantra and said that he had nothing further to say about it this evening.
Today - Employment - Report - August - Impact
Earlier today, the Employment Report for August showed that the impact of the US-China trade war is not limited to manufacturing activity and business investment. Nonfarm payroll growth slowed down to 130K in August from 159K in July (revised). And this is including 25K census workers boosting federal employment. Otherwise, nonfarm payroll growth would have been only 105K. At this rate employment growth should be just enough to absorb the inflow to the labor market. Unemployment remained unchanged at 3.7%. The slowdown in employment growth strengthens the case for an insurance cut. With employment growth weakening, and business investment and manufacturing activity...
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