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An unexpected decline in US job growth in July has raised concerns about the Federal Reserve’s slow pace in reducing borrowing costs for Americans, potentially risking the recession it has been trying to prevent.
The latest employment report revealed that companies added 114,000 jobs in the US economy last month, significantly lower than the average gain of 215,000 jobs over the past year.
The unemployment rate also increased to 4.3%, triggering the Sahm Rule, which indicates a recession when the jobless rate rises by at least half a percentage point above its low in the past year.
This data follows the Federal Reserve’s decision not to lower its benchmark interest rate, which has remained at 5.25% to 5.5% since last July.
Chair Jay Powell mentioned that the Federal Open Market Committee is waiting for more evidence of inflation returning to its 2% target before considering any changes in monetary policy. However, he emphasized the need to avoid further cooling in the labor market.
Powell hinted at a rate cut in the upcoming September meeting, especially after the disappointing July jobs report. Economists suggest that the Fed may need to be more aggressive in lowering rates, given the delay in starting rate cuts earlier.
Market reactions to the jobs report indicate expectations of multiple rate cuts by the Fed this year, with some Wall Street banks predicting significant reductions in the policy rate.
Despite concerns about the labor market, some economists urge caution in making hasty decisions based on short-term data fluctuations.
While acknowledging the cooling of the economy, experts believe that the US economy is still stable and not on the verge of a collapse. However, the Fed’s decision on rate cuts will be crucial in preventing an unwanted recession.