Despite expectations of a Fed rate cut in September, one economist warns that monetary policy could take time to work through the economy.
Transcript:
CAROLINE WOODS: So if we do see the Fed eventually cut rates, maybe in September or even in December, what impact would we then see on the labor market from those rate cuts?
KORY KANTENGA: I think it will be a while before we actually see any impact when interest rates start going up. Hiring was still running at a pretty strong pace, so if interest rates didn’t tank the labor market immediately, they’re not going to save it immediately. It’s going to take some time for those interest rates, cuts to work their way through the economy. And so even if the Fed cuts rates in September, in September, even if they did it aggressively, I would still expect to see some slowdown in the labor market in the second half of this year, just given the level of uncertainty.
CAROLINE WOODS: Is a recession in your forecast, Kory, how much of a slowdown?
KORY KANTENGA: So definitely a slowdown is expected in the second half of the year, but not a recession at the moment. When you look at different projections for how the US economy is going to perform, we’re still expected to grow above 1% year over year this year. And if we were in a recession, we would expect that to be contracting. So there’s definitely some slowdown that is expected. We are, we’ve kind of been surprised that it hasn’t manifested already in some sense, in part because the level of uncertainty that we’re facing is quite elevated. The level of tariffs that we’re facing are the highest since World War Two. But the US economy has still been resilient. I expect some of that resilience to persist through the year. And though we will see some slowdown, I don’t expect to see a recession.
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