Weak Labor Data Confirms Prospects of Fed Rate Cuts

Prospects of a Fed Rate Cut are looking almost certain with fresh data on Friday that pointed of weak Labor statistics. The data now amplifies calls of traders betting on rate cuts for a positive outing in stock markets.

Ahead of the US-FOMC meeting, traders believe a 25-basis-point cut seems more obvious. In fact, analysts at Securities research agency Emkay Global are expecting three cuts in total for 2025.

The trend follows from Thursday where the US Bureau of Labor Statistics announced higher CPI numbers.

Headline CPI rose 0.4 per cent month-over-month, exceeding estimates of 0.3 per cent, and increased 2.9 per cent year-over-year. Core CPI increased by 0.3 per cent from July and 3.1 per cent year-over-year, aligning with expectations.

“August's CPI data confirms that while inflation may not be getting worse, it is not getting a lot better either,” said Madhavi Arora, Chief Economist, Emkay Global Financial Services.

However, she added that weakening job figures will compel the Fed to turn towards the employment side of its dual mandate and restart its easing cycle next week.

WHAT DOES THIS MEAN FOR INDIA?

Tariffs causing inflation? The latest data does not necessarily point out that tariffs have caused inflation? However, sectors such as Shelter reported a jump in US' latest CPI numbers.

Will markets witness volatility? US markets rallied on Wednesday and Thursday and are likely to extend the rally to the end of the week. Markets showed positive movement, with Treasury yields declining and the dollar decreasing slightly. Overnight, the Dow Jones Industrial Average jumped 1.36 per cent, while the Nasdaq advanced by 0.72 per cent and the S&P 500 gained 0.85 per cent.

Is America reeling under recession? Economic numbers do not clearly point out to an economic recession, however Moody's Chief economist Mark Zandi believes otherwise. He was one of the first economists to foresee the 2008 financial crisis and had opined previously that state-level data indicated the US on verge of a recession.