Fed's jumbo cut shows commitment to support strength in labor market: Report

By Ovunc Kutlu

ISTANBUL (AA) - The US Federal Reserve's jumbo interest rate cut indicates the Federal Open Market Committee (FOMC) officials’ commitment to support the strength in the US labor market, according to a report on Friday.

The FOMC wants to "ensure that downside risks do not materialize as layoffs and unemployment claims currently remain minimal," research organization The Conference Board said.

"Today’s labor market is on more solid footing relative to the starting places of past rate cutting cycles," it added. "Re-entrants and new job seekers make up 50% of the current rise in unemployment, diverging from prior periods that resulted in recession."

Mitchell Barnes, an economist for The Conference Board, said in the report that the Fed’s decision to cut interest rates by 50 basis points, instead of 25 basis points, acknowledges that the labor market has held up stronger than initially expected, and that a further slowdown in business activity and hiring could jeopardize the US economy’s strength.

"The recent softening in the labor market has been the type of normalization that the Fed has been explicitly targeting. Unemployment at 4.2% has risen slightly but from a 55-year low in 2023, while layoffs remain minimal as firms continue holding onto workers," he said.

"Consistent with the Fed’s objective, job openings have come down from their peak and now stand within 100,000 of the pre-pandemic high. Hiring has slowed from a blistering pace to healthy in 2024, however recent hiring and payroll data have caused concern," he added.

The Conference Board said its views the US labor market entering into early 2025 "largely holding steady," as the lowering of interest rates and the end of election uncertainties will create a clearer picture for businesses of the economic path ahead.