Since the volatile episode we experienced at the beginning of August, the market seems (at last) to be waking up to the fact that the US economy is slowing down. However, as is unfortunately often the case, market sentiment has shifted from one extreme to the other: from a soft landing, or even a no landing, for the US economy, investors are now focusing on a much harder landing for growth. While in our communications we have regularly emphasized the overly consensual view of soft landing, pointing in particular to the early signs of a slowdown, we do not, on the other hand, give in to exacerbated fears about US growth. On the contrary, we believe that the latest macroeconomic figures confirm the gradual slowdown, without fundamentally calling it into question. Nevertheless, we note that the ” bad news is good news ” trend of recent months has come to an end. From now on, bad macroeconomic news will be interpreted as such, and no longer as a positive factor in lowering inflation.
Fluctuations in the financial markets following the publication of the August employment report illustrated investors’ hesitations about the interpretation of these figures and the consequences for the Fed’s future monetary policy in the light of its meeting next week. While a 25 bps cut in key rates seems to have been agreed (a first since the plateau was reached over a year ago), is it possible that the latest economic data will allow the Fed to cut rates by 50 bps? While the Fed’s room for manoeuvre is considerable, making such a cut easy, the market’s perception of a ” jumbo cut” is not. “On the other hand, it could be negative, reflecting the image of a central bank behind on its monetary cycle and worried about the economic situation.
In our view, the latest employment data are not bad enough to justify an over-reaction by the Fed, although they do confirm the slowdown in the labour market. Indeed, job creation figures came in below expectations, with a further downward revision over the last two months. Nevertheless, job creation data showed a slight rebound compared with June and July, with wages rising by more than expected, proving that even if the labor market is weakening, it is still far from breaking down. Pre-blackout statements by Christopher Waller, Governor of the US Federal Reserve, and John Williams, President of the New York Fed, do not seem to be sending out any clear signals about a double rate cut.
But before the Fed, the ECB will hold its monetary policy meeting this week. While there is little doubt that rates will be eased here too, we expect the ECB to be a little more forthcoming on the question of further monetary policy easing.
