Fed's jumbo rate cut reflects worries about US labor market: Report

By Ovunc Kutlu

ISTANBUL (AA) -

The Federal Reserve's jumbo rate cut of 50 basis points reflects worries about the US labor market, according to a report by research organization The Conference Board.

"This probably reflected mounting concerns about downside risks to the labor market as hours are being cut in some parts of the country and payroll employment over the last year or so might be revised downward," Dana Peterson, chief economist at research organization The Conference Board, said in the report.

"However, the Fed did provide a rather glowing assessment of the US economy, believing GDP growth remains solid, the labor market is still healthy, and inflation is trending back to the 2-percent target," she added.

The Fed's move marked the first cut by the central bank since the beginning of the coronavirus pandemic. Except for the emergency rate cuts at the start of the pandemic, the last time the Fed delivered a rate cut of 50 basis points was during the global financial crisis in 2008.

Peterson noted that the Fed Chair Jerome Powell did not believe the US economy is susceptible to a shock that would cause an economic downturn.

Powell told a post-meeting press conference that the US labor market is in "solid condition" and the American economy is in "good shape," adding that it is growing at "a solid pace."

"If the economy remains solid and inflation persists, we can dial back policy restraint more slowly. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond," he said.

Peterson said the Fed has started its new phase of monetary policy with "a bold move," and it is not apparent that subsequent rate cuts will be as large, nor that cuts would take place at consecutive meetings.

She noted that The Conference Board believes that 25 basis points cuts may be appropriate at each of the Fed's November and December meetings this year.