Steep rate cuts from the Federal Reserve could be coming later this year thanks to weakening in the job market, which likely isn’t as robust as some of the latest data has made it out to be, according to Wells Fargo strategist Erik Nelson.
Speaking with Bloomberg TV on Monday, Nelson estimated that the Fed could cut interest rates 100-125 basis points over the next nine months, reflecting a quicker pace of easing than what investors or central bankers have suggested this year.
Markets are pricing in a 34% chance rates could but cut by 100 basis points by the end of the year, according to the CME FedWatch tool, while Fed officials have suggested 75 basis points of rate cuts are on the table in 2024.
Nelson believes that the negative catalyst triggering these deeper than anticipated rate cuts could be visible in the job market. Although hiring appears strong on the surface with 353,000 jobs added in January and an unemployment rate of only 3.7%, Nelson suspects that much of this strength may be seasonal and not indicative of the true state of the labor market.
“I wouldn’t say we’re necessarily in a recessionary labor market by any means…but to think that we are adding 350,000 jobs a month, I don’t really see any other data in the labor market that confirms that kind of trend,” he said. Nelson estimates that job growth is actually closer to 150,000 to 200,000 payrolls per month.
As residual seasonality fades in the upcoming job reports for February and March, the narrative could shift to reveal a weaker labor market than previously thought, according to Nelson.
These concerns about the job market are shared by other market commentators who suggest that hiring activity could weaken in 2024 due to tighter financial conditions. The number of continuing unemployment claims, which currently stand at around 1.9 million, is considered to be at near “recessionary levels” and is seen as an indicator that the economy could be approaching a downturn.
Despite these risks, investors remain optimistic about stocks, with everyday investors displaying the most bullish sentiment in nearly 17 years. The S&P 500 continues to reach new highs in 2024.
Steep rate cuts from the Federal Reserve could be coming later this year thanks to weakening in the job market, which likely isn’t as robust as some of the latest data has made it out to be, according to Wells Fargo strategist Erik Nelson. Nelson estimates that the Fed could cut interest rates 100-125 basis points over the next nine months, reflecting a quicker pace of easing than what investors or central bankers have suggested this year. Markets are pricing in a 34% chance rates could but cut by 100 basis points by the end of the year, according to the CME FedWatch tool, while Fed officials have suggested 75 basis points of rate cuts are on the table in 2024.
Nelson believes that the negative catalyst triggering these deeper than anticipated rate cuts could be visible in the job market. Although hiring appears strong on the surface with 353,000 jobs added in January and an unemployment rate of only 3.7%, Nelson suspects that much of this strength may be seasonal and not indicative of the true state of the labor market. Nelson estimates that job growth is actually closer to 150,000 to 200,000 payrolls per month.
These concerns about the job market are shared by other market commentators who suggest that hiring activity could weaken in 2024 due to tighter financial conditions. The number of continuing unemployment claims, which currently stand at around 1.9 million, is considered to be at near “recessionary levels” and is seen as an indicator that the economy could be approaching a downturn.
Despite these risks, investors remain optimistic about stocks, with everyday investors displaying the most bullish sentiment in nearly 17 years. The S&P 500 continues to reach new highs in 2024.
Key terms and jargon:
– Federal Reserve: Den amerikanske sentralbanken (URL: https://www.federalreserve.gov/)
– Interest rates: Rentesatser
– Basis points: Basispunkter
– CME FedWatch: En verktøy som viser sannsynligheten for endringer i amerikanske sentralbanks rente (URL: https://www.cmegroup.com/)
– Labor market: Arbeidsmarked
– Recessionary labor market: Resesjonslignende arbeidsmarked
– Job growth: Jobbvekst
– Payrolls: Lønnslipper
– Continuing unemployment claims: Fortsatt arbeidsledighetserstatning
– S&P 500: Aksjeindeksen S&P 500 (URL: https://www.spglobal.com/spdji/en/indices/equity/sp-500/)
Related link:
– Wells Fargo (Main domain): wellsfargo.com
Oppsummering:
Ifølge Wells Fargo-strateg Erik Nelson kan Federal Reserve innføre betydelige rentekutt senere i år på grunn av en svekkelse i arbeidsmarkedet som sannsynligvis ikke er så robust som det siste datamaterialet har antydet. Nelson anslår at Fed kan kutte rentene med 100-125 basispunkter i løpet av de neste ni månedene, som er en raskere tempo enn det investorer eller sentralbankfolk har antydet tidligere i år. Markedene priser inn en 34% sjanse for at rentene kan kuttes med 100 basispunkter innen utgangen av året, ifølge CME FedWatch-verktøyet, mens Fed-tjenestemenn har antydet at det er 75 basispunkter av rentekutt på bordet i 2024.
Nelson mener at den negative katalysatoren som utløser disse dypere enn forventede rentekuttene kan være synlige i arbeidsmarkedet. Selv om ansettelsene i januar ser sterke ut med 353 000 nye jobber og en arbeidsledighet på bare 3,7%, mistenker Nelson at mye av denne styrken kan være sesongbetont og ikke indikativ for den virkelige tilstanden i arbeidsmarkedet. Nelson anslår at jobbveksten faktisk er nærmere 150 000 til 200 000 stillinger per måned.
Disse bekymringene om arbeidsmarkedet deles av andre markedskommentatorer som antyder at ansettelser kan svekkes i 2024 på grunn av strammere økonomiske forhold. Antallet fortsette arbeidsledighetserstatninger, som for øyeblikket ligger på rundt 1,9 millioner, regnes som nær “resebjectonslignende nivåer” og anses som en indikasjon på at økonomien kan nærme seg en nedgang.
Tross disse risikoene, erinvestorer optimistiske med tanke på aksjer, og vanlige investorer viser den mest bullish holdningen på nesten 17 år. S&P 500 fortsetter å nå nye høyder i 2024.
Nøkkelord og uttrykk:
– Federal Reserve: Den amerikanske sentralbanken (URL: https://www.federalreserve.gov/)
– Rentesatser: Interest rates
– Basispunkter: Basis points
– CME FedWatch: En verktøy som viser sannsynligheten for endringer i amerikanske sentralbanks rente (URL: https://www.cmegroup.com/)
– Arbeidsmarked: Labor market
– Resesjonslignende arbeidsmarked: Recessionary labor market
– Jobbvekst: Job growth
– Lønnslipper: Payrolls
– Fortsatt arbeidsledighetserstatning: Continuing unemployment claims
– S&P 500: Aksjeindeksen S&P 500 (URL: https://www.spglobal.com/spdji/en/indices/equity/sp-500/)
Relatert lenke:
– Wells Fargo (hoveddomene): wellsfargo.com