If interest rates are not lowered soon, the U.S. may face a recession

In a report on Wednesday, Macquarie strategists stated that if the Federal Reserve does not cut interest rates, the U.S. economy will face the risk of a recession. Their assessment is based on U.S. employment data and consumer confidence.

The U.S. unemployment rate rose
Macquarie's foreign exchange and rates strategists Thierry Wizman and Gareth Berry wrote, "We’re not saying a recession is imminent, but the chances will significantly increase if the Fed does not lower rates."

According to data from the U.S. Bureau of Labor Statistics, the U.S. unemployment rate rose to 4.3% in July from 4.1% in June. Meanwhile, the consumer confidence report released on Tuesday was "mixed."

The Conference Board's chief economist Dana M. Peterson stated in a press release, “Consumers’ assessment of the current labor market, while still optimistic, continues to weaken, and their view of the future labor market has become more pessimistic. This may reflect the recent rise in the unemployment rate.”

Peterson added that consumers were also slightly less optimistic about future income.

Jobs are hard to get in The U.S.
Macquarie strategists wrote, "Worryingly, the percentage of respondents saying jobs are hard to get has ticked up, while those saying jobs are plentiful has ticked down."

According to Macquarie's analysis, the difference between these two indicators is closely tied to the unemployment rate.

In August’s survey, this gap reached its highest level of the year. It stands at the highest level since March 2021, when the unemployment rate was 6.1%.

Macquarie strategists wrote, "With this gap continuing to widen, we think it’s unlikely that the unemployment rate won’t rise."

Things contributed to the nationwide slowdown in jobs growth:
1. Rising Interest Rates: The Federal Reserve's aggressive rate hikes in 2022 and 2023 increased borrowing costs for businesses, leading to reduced investment and hiring.

2. Economic Uncertainty: Concerns over a potential recession and global economic instability have made businesses more cautious about expanding their workforce.

3. Industry-Specific Challenges: Sectors like retail and hospitality have faced headwinds from changing consumer behaviors, while industries like tech have seen mass layoffs amid declining revenues and cost-cutting measures.

4. Supply Chain Issues: Ongoing disruptions in global supply chains have affected business operations, leading to slower growth and cautious hiring strategies.

5. Inflation and Cost Pressures: High inflation has increased operational costs for companies, forcing many to limit hiring in order to control expenses.

6. Reduced Consumer Demand: As consumers face inflation and economic pressures, demand for certain goods and services has decreased, leading businesses to scale back on hiring.
Since Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium last week, the market has been digesting expectations of an impending rate cut. Powell stated, "It’s time to adjust policy," signaling the Fed’s readiness to lower rates.

Macquarie is the latest Wall Street firm to weigh in on how the U.S. labor market outlook might impact the Fed's rate decision. The Federal Reserve may decide in September to reduce its current target rate of 5.25% to 5.50%.

JPMorgan said on Tuesday that the Fed may significantly lower rates because it is "alarmed" by the weakening labor market.

The CME Group's FedWatch tool shows that investors expect the Fed to cut rates by 25 basis points at its next meeting on September 17-18.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.