Standard Chartered Predicts 50 Basis Points Fed Rate Cut Next Week After Unemployment Soared to Near Four-Year High: Report

Banking giant Standard Chartered believes the Federal Reserve should cut interest rates by half a percentage point following a less-than-stellar August jobs report.

Last week, the Bureau of Labor Statistics revealed that the US economy added just 22,000 jobs in August, well below the consensus expectation of 75,000.

In addition, the unemployment rate rose to 4.3 last month, matching the highest recorded in October 2021.

In a client note, Standard Chartered says that the US labor market has deteriorated from “solid to soft” in a matter of weeks, reports Reuters.

“August labor market data has paved the way for a ‘catch-up’ 50-basis-point rate cut at the September FOMC meeting, similar to what occurred at this time last year.”

The Federal Open Market Committee (FOMC) is slated to hold a meeting on September 16th to 17th.

Standard Chartered is not the only one to call for a 50-basis-point reduction for this month’s meeting. Last month, BlackRock executive Rick Rieder also predicted that the Fed would announce a larger cut than expected amid a weakening labor market.

“If slack in the labor force builds at all, or we continue to see a below 100,000 jobs hiring rate persistently, we would expect the Fed to start moving rates lower, and a 50-basis point cut in September might be possible depending on how the data evolves.”

But while both BlackRock and Standard Chartered are calling for a half-point reduction, the odds are not in their favor. Data from the CME FedWatch Tool shows that only 7 of market participants are expecting a cut of 50 basis points (bps). The remaining 93 are projecting a more modest 25 bps cut.