Fed Cuts Rates by Half Point in Bid to Defend Economy

50bps cut! Yeah, you read that right. Job gains? Slowed down. Unemployment? Likely creeping up. They’re projecting a median 4.4% unemployment by year-end, compared to 4% just a few months ago. What does that tell you? The Fed doesn’t just pull the trigger on a 50bps cut unless they see red flags. Fewer hires, more cautious moves—businesses are hitting the brakes hard.

From the LIVE FOMC Press Conference September 18, 2024

KEY Data points about the Job Market and why Powell isn't worried as much:

Unemployment- 4.2% right now... It was below mid 3% last year. He still thinks this is healthy at 4.2%.

Participation is at high levels. Adjusted for aging demographics.

Wages are still a bit above where they should be over 2.2% inflation.

Vacancies for unemployed- is still a high level 2:1.

Quits have come back down to normal levels.

This is still a solid labor market. But there has been change in the last few months.

The upside risks to inflation came down- but unemployment risks have increased. We were patient on inflation and now we can manage risks on both of these.

We have 2 jobs reports before the next meeting. Powell is watching data.

Hiring is always sluggish in the colder months. Now? Expect a freeze. Literally. Companies are already pulling back, and this rate cut is a neon sign saying it’s only going to get worse. We are seeing this with Boeing, Cisco, PwC, Verizon and Airtable. While certain industries will boom with this, some businesses will feel this HARD, they stop expanding, they stop hiring, and they start playing defense. That means fewer jobs, tougher competition, and people scrambling to hold onto what they’ve got.JFYI - the Highest unemployment rate we've seen this year has been 4.3%.Dean Baker at the Center for Economic & Policy Research sees little downside to today’s move:“It is good that the Fed has now recognized the weakening of the labor market and responded with an aggressive cut. Given there is almost no risk of rekindling inflation, the greater boost to the labor market is largely costless. Also, it will help to spur the housing market where millions of people have put off selling homes because of high mortgage rates.”

Powell says it is all about coming into this with a policy position from July 2023- high inflation and low unemployment- they have been patient- they waited and they are happy inflation is decreasing.

BUT it leaves us all wondering- are they worried about rising unemployment?

He said that clearly the labor market conditions have cooled off - but still at a level is still near maximum employment. Payroll job creation has slowed down... and the labor market is close to 2019 which was good- they will be watching it.

But Powell says they believe they continue to see the economy gorw-- which will support labor market.

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Amanda, The Job Chick