Another Fed Rate Cut Is Expected After Weak Economic Data

Fed officials have had reasons to keep their options open. The end of October is far away, with many fresh data points between now and then. And until lately, incoming data had been mixed: Bad factory numbers came alongside strong consumer and service-sector figures.

As signs of a broader deterioration surface, Friday’s jobs report will be in the spotlight. Officials have taken comfort in the fact that the labor market has remained strong, and will be looking for confirmation of that. Employers added 130,000 jobs in August, and economists expect them to hire a similar number this month.

Even a great report may not shift expectations away from an October rate cut, said Neil Dutta, head of economics at Renaissance Macro Research. Fed officials and most economists anticipate decent hiring and low unemployment, so a strong job market would amount to reaffirmation.

If the labor market shows signs of cracking, though, “the odds for a cut in December will probably look like October does now,” Mr. Dutta said.

Should economic data weaken further, economists said, it is possible the Fed would move from its current mode — one in which it’s playing a protective offense — to all-out defense. They could signal that more aggressive rate cuts are coming, rather than the gentle midbusiness cycle adjustments underway.

The data have yet to call for that change in stance, because there are many signs that economic activity is holding up. Wages are growing, though the pace has stopped accelerating. Unemployment is near a half-century low. Consumers continue to spend, and housing starts have headed higher.

But the bright spots are getting fewer and farther between. Tiffany Wilding, chief United States economist at PIMCO, pointed out in a research note that the current level of manufacturing and service indexes has historically come alongside 1 percent overall growth.

Article source: https://www.nytimes.com/2019/10/03/business/economy/weak-economic-data-fed-rate-cut.html?emc=rss&partner=rss