An eagle soars above the facade of the U.S. Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst/
Jonathan Ernst | Reuters
While British fund manager abdrn predicts a soft landing for the US economy, the risk of a prolonged slowdown in 2025 still exists, said Kenneth Akintewe, the firm’s head of Asian sovereign debt.
Speaking to CNBC’s “Squawk Box Asia” on Monday, Akintewe asked: “Is the Fed already making a monetary policy mistake?”
He pointed to economic data such as nonfarm payrolls, saying they were later revised to reflect a weaker economic picture. In August, the U.S. Department of Labor reported that the U.S. economy added 818,000 fewer jobs than expected from April 2023 to March 2024.
In its preliminary annual revisions to the benchmark nonfarm payrolls numbers, the Bureau of Labor Statistics said actual job growth was nearly 30% lower than the 2.9 million initially reported from April 2023 through March of this year.
Akintewe said: “Is the economy already weaker than the headline data suggests and (the Fed) should be easing policy already?”
He added that Fed policy changes take time to feed through to the economy, “so if the economy is weaker than the headline data suggests, they’re going to have to build up a sufficient amount of easing, you know, 150, 200 basis points, that’s going to take time.”
“And once you do that level of easing, it takes six to eight months to deliver it.” A spokesperson for the U.S. central bank was not immediately available when contacted by CNBC.
If the economy suddenly shows signs of further weakness in early 2025, Akintewe said, it would take until the second half of 2025 to see the effects of any easing transmit to the economy, which could be “quite different” by then.
He also argued that the market is too focused on predicting the magnitude of a potential cut, asking: “The other question that no one seems to be asking is: Why is the policy rate still at 5.5% when inflation has fallen to almost 2.5%? For example, is it necessary to have a real policy rate of 300 basis points in this type of environment with all the uncertainty that we are facing?”
In the United States, data showed Friday that the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, rose 0.2% last month, as expected.
The data appears to support a smaller rate cut, with US rate futures suggesting a lower chance of a 50 basis point rate cut later in September.
Currently, markets are pricing in nearly a 70% chance of a 25 basis point cut at the Fed’s meeting this month, with the remaining 30% expecting the Fed to cut rates by 50 basis points, according to the CME Fedwatch tool.
—CNBC’s Jeff Cox contributed to this report.
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