Goolsbee: Fed Is Ready To Act If Economic Conditions Deteriorate
AInvestMonday, Aug 5, 2024 11:06 am ET
2min read
NVDA --

Chicago Federal Reserve President Austan Goolsbee said on Monday that the Federal Reserve will react to signs of economic weakness and suggested that current interest rates may be too restrictive.

When asked whether the weakness in the job market and manufacturing would prompt the Federal Reserve to respond, Goolsbee did not commit to a specific course of action but said that maintaining a restrictive policy stance would not make sense if the economy is weakening.

Goolsbee emphasized: As you see jobs numbers come in weaker than expected but not looking yet like recession, I do think you want to be forward-looking of where the economy is headed for making the decisions. He added that if overall conditions begin to deteriorate, affecting any aspect of employment, price stability, or financial stability, they will take measures to fix it.

At the time of his interview, the global market encountered a Black Monday, and the U.S. stock market was no exception. The three major U.S. stock indices fell sharply at the opening, with the S&P 500 down 4.2% and the Nasdaq down 6%. Star tech stocks fell, with Nvidia falling 13%, and the stock price breaking below the $100 mark.

Last week, the Federal Reserve remained on hold, and Federal Reserve Chairman Jerome Powell said he needed more data to prove the rationale for a rate cut.

However, the employment report released last Friday revealed weakness in multiple aspects: 114,000 new jobs were added in July, which was lower than expected; the number of new jobs added in previous months was revised down.

In addition, the unemployment rate rose to 4.3%, triggering the Sahm Rule, indicating that the U.S. economy has fallen into a recession, which has intensified people's concerns. The Sahm Rule states that when the three-month moving average of the U.S. unemployment rate rises by more than 0.5 percentage points from its lowest point in the past 12 months, a recession may begin.

People are increasingly worried that the Federal Reserve's actions may be lagging, which is also one of the major reasons for the global market crash, and many investors are looking forward to this: as long as the Federal Reserve takes action, everything will get better.

However, Goolsbee reiterated that the Federal Reserve's job is not to respond to a month of weaker labor data, and emphasized that the error range of monthly employment data is 100,000, so don't jump to conclusions. When asked about the emergency rate cut called for by the market, Goolsbee said that options including raising and lowering interest rates have always been on the table, and if the economy deteriorates, the Federal Reserve will take measures to fix it.

He added that when discussing whether to reduce the restrictiveness of policy, he will not preclude future measures that may be taken, as the Federal Reserve also needs to obtain more information to make decisions. However, if the economy has not overheated, then it should not continue to take restrictive or restrictive measures.

HQ Trust Chief Investment Officer Christian Subbe said he expects the Federal Reserve will not cut interest rates before the September meeting, but officials' remarks may become more dovish and help soothe the market. He said that weak data does not necessarily indicate an economic hard landing, and if necessary, the Federal Reserve has enough room to further reduce interest rates.

Wharton professor Jeremy Siegel believes that the Federal Reserve should urgently cut interest rates by 75 basis points now, and then cut interest rates by another 75 basis points at the September interest rate meeting. Siegel predicts that if the Federal Reserve does not urgently cut interest rates before the September meeting, the market will react severely.

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