The U.S. economy is currently facing uncertainties as British fund manager abdrn predicts a potential prolonged slowdown in 2025. Kenneth Akintewe, the company’s head of Asian sovereign debt, raised concerns about the Federal Reserve’s policies and the risk of a policy mistake.
Akintewe pointed out that economic data, such as non-farm payrolls, have been revised to reflect a weaker economic outlook. Recent reports from the U.S. Labor Department revealed that the economy created 818,000 fewer jobs than initially reported from April 2023 to March 2024.
The Bureau of Labor Statistics also announced preliminary annual benchmark revisions to nonfarm payroll numbers, indicating that job growth was nearly 30% lower than previously stated. Akintewe questioned whether the economy is weaker than the headline data suggests and if the Fed should consider easing its policies.
He emphasized that policy changes by the Fed take time to impact the economy, requiring a significant amount of easing, potentially 150 to 200 basis points, which could take months to transmit. If the economy shows signs of further weakness in early 2025, the effects of any easing may not be felt until the second half of the year.
Akintewe also criticized the current policy rate of 5.5% despite inflation being around 2.5%, questioning the need for such a high real policy rate in uncertain times.
In light of recent data showing a slight increase in the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, market expectations for a rate cut in September have varied. While U.S. rate futures suggest a 70% chance of a 25-basis-point rate cut, there is a 30% expectation for a 50 basis-point cut at the Fed’s upcoming meeting.
Overall, the U.S. economy’s future remains uncertain, with the Fed’s policies and potential rate cuts being closely monitored. The market will continue to assess economic data and Fed decisions to navigate through the challenges ahead.
