Highlights
Softer-than-expected labor market data is expected to have tipped the risk scales more towards labor over inflation, and thus Chair Powell and the Fed may cut rates in September, and potentially quicker thereafter. Key observations:
- July’s downward payroll revisions sparked concerns of quicker cooling.
- Fed Chair Powell, who has been cautious to cut rates amidst inflation concerns, pivoted at Jackson Hole and opened the door for a September rate cut.
- August’s further cooling prompted markets to fully price in such a cut.
- Labor market cooling appears driven by some cyclical slowing, but also elevated uncertainty, which is prompting companies to take a “wait and see” approach.
- That said, we’re coming off historically strong labor markets, so some of this slowing reflects normalization rather than deterioration.
- We see several metrics pointing to a more historically balanced supply/demand equation for labor markets.
- Nonetheless, softer labor markets coincide with a likely downshift from the above-trend economic growth of the last couple years to a slower rate today.
This is a summary of our Monthly Market Insights report.
