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An eagle stands on the outer wall of the Federal Reserve building in Washington, the United States, July 31, 2013. Reuters/Jonathan Ernst/
Jonathan Ernst | Reuters
British fund manager Abdrn predicts a soft landing for the U.S. economy, but Kenneth Akintewe, the firm’s head of Asian sovereign debt, said there was still a risk of a prolonged slowdown in 2025.
In an interview with CNBC,Asian Financial Forum“Has the Fed made a policy mistake?” Akintwe asked on Monday.
He noted that economic data such as nonfarm payrolls were later revised to reflect weaker economic conditions. In August, the Labor Department reported that the U.S. economy 818,000 fewer jobs This is an increase from the initially reported period of April 2023 to March 2024.
As a preliminary Annual Benchmark Revision For nonfarm payrolls, the U.S. Bureau of Labor Statistics said actual job growth from April 2023 to March of this year was nearly 30% lower than the initially reported 2.9 million.
“Is the economy weaker than the headline data suggests and should the Fed already be easing policy?” Akintwe asked.
He added that it takes time for Fed policy changes to work their way through the economy, “so if the economy is weaker than the headline data suggests, they’re going to need to accumulate enough accommodation, you know, 150, 200 basis points, and that takes time.”
“Moreover, once such a large-scale easing is implemented, it will take six to eight months for it to be transmitted to the market.”
Akintewe said that if the economy suddenly shows signs of weakness in early 2025, the effect of the easing policy will not be seen until the second half of 2025, and the economic situation may be “very different” by then.
He also believes that the market is too focused on predicting the size of possible future rate cuts. He asked: “Another question that no one seems to be asking is why the policy rate is still at 5.5% when inflation has fallen to closer to 2.5%? In this uncertain environment, is a 300 basis point real policy rate necessary?”
On Friday, U.S. data showed that the Federal Reserve’s preferred measure of inflation, the personal consumption expenditures (PCE) price index, rose 0.2% last month, in line with expectations.
The data seems to support a smaller rate cut. U.S. interest rate futures imply A 50 basis point rate cut at the end of September is less likely.
According to market forecasts, the market currently expects that the probability of the Federal Reserve cutting interest rates by 25 basis points at this month’s meeting is close to 70%, and the remaining 30% expect the Federal Reserve to cut interest rates by 50 basis points. CME Fed Watch Tool.
—CNBC’s Jeff Cox contributed to this report.
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