Does a 50 basis point rate cut indicate deeper problems?
Concerns about a 50 basis point rate cut stem from the broader macroeconomic backdrop, with the Fed’s emergency rate hikes in 2022 designed to tame inflation but also exposing underlying weaknesses in the economy — weaknesses that are now surfacing in the form of a slowing labor market.
Friday’s jobs report was another chapter in a multi-year underperformance of the U.S. labor market. Until now, that trend has been masked by exaggerated jobs reports that have been repeatedly revised down after their initial release. The most recent report actually showed signs of labor market weakness when it was released, with the Bureau of Labor Statistics’ household survey showing that the unemployment rate had not improved in the past month and the number of unemployed people had increased from 6.3 million to 7.1 million over the past year. This means that the labor market has actually been so weak that the weakness can no longer be concealed.
Many employed people are still struggling financially. Depending on the measure, the purchasing power of U.S. wages is either matching or lagging inflation.
