An eagle atop the facade of the U.S. Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst/
Jonathan Ernst | Reuters
While the British fund manager predicts a soft landing for the US economy, there is still a risk of a prolonged recession into 2025, said Kenneth Akintewe, the firm’s head of Asian sovereign debt.
Speaking to CNBC “Squawk Box Asia“Is the Federal Reserve dreaming of making a policy mistake?” Akintewe asked on Monday.
He pointed to economic data like nonfarm payrolls, which were later revised to reflect a weaker economic picture. In August, the U.S. Labor Department reported that the U.S. economy created 818,000 fewer jobs compared to the original report from April 2023 to March 2024.
As part of its preliminary process annual standard revision As for the 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 to March of this year.
The economy has been weaker than the headline data suggests, Akintewe said. [the Fed] should have loosened up?”
He added that Fed policy changes take time to impact the economy, “so if the economy is weaker than the headline data suggests, they will need to accumulate.” [a] enough easing, you know, 150, 200 basis points, that’s going to take time.”
“And once you have that level of easing, it takes six to eight months to get that through.” A spokesperson for the U.S. central bank did not immediately respond to a request for comment from CNBC.
If the economy suddenly shows signs of weakening in early 2025, it would take until the second half of 2025 to see the impact of any easing measures transmitted through the economy, which could look “quite different,” Akintewe said.
He also argued that markets are too focused on forecasting the size of any cuts that might come next, asking: “The other question that no one seems to be asking is why is the policy rate still at 5.5% when inflation is falling? [to] close to 2.5%? Like, do you need a 300 basis point real policy rate in an environment like this with all the uncertainty we’re facing?”
In the United States on Friday, data showed 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 futures rates show The likelihood of a 50 basis point rate cut by the end of September is lower.
Currently, the market sees a nearly 70% chance that the Fed will cut interest rates by 25 basis points at this month’s meeting, while the remaining 30% expect the Fed to cut interest rates by 50 basis points, according to CME Fedwatch Tool.
— CNBC’s Jeff Cox contributed to this report.
