White House economic adviser Larry Kudlow told Bloomberg Television on Friday that he would welcome the Federal Reserve lowering interest rates this fall, adding that the monetary policy has limited U.S. economic growth.
"Market is telling us the Fed is going to lower rates in September and October. I think that's a good thing," Kudlow told Bloomberg Television.
"We shouldn't have an inverted yield curve. We should normalize that. And I think that if we get to a normal position it will actually help the economy get back above 3%."
U.S. short-term interest rate futures on Friday pared earlier losses after a government report showed U.S. employers slowed hiring in August, leaving intact bets that the Federal Reserve will follow July’s interest-rate reduction with two more rate cuts this year.
Traders are pricing in a quarter-point decrease in the Fed’s policy rate target, to a range of 1.75% to 2%, at the Fed’s Sept. 17-18 meeting, with a second policy easing expected by year’s end, based on futures contracts traded at CME Group.
Also on Friday, speaking at the University of Zurich, Fed Chair Jerome Powell said the labor market was strong and the central bank will continue to “act as appropriate” to sustain economic expansion. He also said the United States and the world economy are not likely to fall into recession.
“There’s no question momentum in the labor market is waning a little,” said Moira McLachlan, senior investment strategist at AB Bernstein in Miami. “I don’t think there’s anything in there to undermine the case for a rate cut in September.”
Others said the mixed data gave the Fed options.
“If the Fed is bent on becoming more dovish, the jobs data coming in shy of expectations feeds into that narrative and if they want to become more neutral, the wage inflation increasing above expectations strengthens that narrative,” said Keith Buchanan, portfolio manager at Globalt in Atlanta.
The Labor Department’s nonfarm payroll data showed the economy added 130,000 jobs in August, below expectations for a gain of 158,000, according to a Reuters survey of economists. While average hourly earnings gained 0.4% last month in the largest increase since February, the annual increase dipped to 3.2% from 3.3% in July.
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