Fears of a possible recession in the United States continue this Monday, an alarm that began last Friday, August 2, after the Department of Labor, through the Bureau of Labor Statistics (BLS), reported a slowdown in job creation with 114,000 new jobs added in July.
In addition, the BLS highlighted that the unemployment rate increased two-tenths last month and stood at 4.3%, one of the highest figures since October 2021. The information was released the same week in which the Federal Reserve announced that interest rates would remain in the 5.50% range.
However, the wave of uncertainty that triggered the fall in the shares of various companies on Friday, accentuating one of the worst days for the American stock market, is nothing more than a reaction to the strict strategy of the FED, which by maintaining high interest rates hopes to reduce inflation and which, as a consequence, cornered the labor market.
A wave of liquidation
For the morning operations of this Monday, August 5, The Dow Jones reported a drop of 1,152 points 2.90%while the S&P 500 fell 3.66% and the Nasdaq Composite fell 4.83%; and as a domino effect, international markets also reported falls.
Asian stock markets led by Japan, South Korea and Taiwan posted sharp falls starting with The Nikkei fell 12.40% at the close of trading, one of the biggest drops since Black Monday in 1987.The Seoul Stock Exchange fell by 8.77%, while in Taiwan, the Taipei Stock Exchange closed with a drop of 8.35%.
In Southeast Asia, the wave of liquidation has also caused falls, such as the Singapore stock exchange with a -4%; followed by the Philippines with a -3%; and Malaysia with a -2.75%. Likewise, the ASX 200 index in Australia closed with a drop of 3.7%, as did Stock markets across Europe reported declines of 2%, In addition, the Bitcoin cryptocurrency fell by 9.5% and gold, considered one of the strongest investment metals in difficult times, fell by 1.4%.
The reaction of the FED
Economic analysts are wondering whether, given the tightening of the FED’s monetary policies and the reaction of the labor market with Rising unemployment is precipitating a new scenario in which interest rate cuts will probably need to be brought forward which, according to the Federal Reserve, would begin this year.
Questions about an emergency meeting by the FED are increasing, given that The next session is scheduled for September 18 of this year.. Brian Jacobsen, chief economist at Annex Wealth Management, said: “This could be at least a symbolic action that they are not blind to what is happening.”
The analyst told AP that “the Federal Reserve could come riding a white horse to save the day with a big rate cut, but The argument for a cut between meetings seems weak,” he said, noting that sometimes these changes are left for emergencies such as a pandemic, but “a 4.3% unemployment rate doesn’t really seem like an emergency,” he said.
And it was precisely on Wednesday that Federal Reserve Chairman Jerome Powell during his press conference responded to being questioned about a possible cooling in the labor market that “If we were to see something that looked like a more significant decline, that would be something we would intend to respond to,” Powell said. in his speech. In this case the question would be: what data does the Fed really expect?
Is a recession looming?
Although the US economy has shown signs of growth in recent months, moving away from a probability of recession, Goldman Sachs economists recently presented a report in which they affirm that the probability of a US recession in the next 12 months has increased by 25%.
Analysts mentioned in the report that the risk of recession “is limited”, although the premise of this statement is based on the forecast for job growth recovering in August and the Fed considering a cut of at least 0.25% in interest rates next month.
But they noted that “if we are wrong and the August jobs report is as weak as the July one, then a 50 basis point cut in September would be likely.”
Powell had already anticipated in his speech on Wednesday that if “the totality of the data, the evolution of the outlook and the balance of risks are consistent with growing confidence in inflation and the maintenance of a solid labor market… A reduction in our policy rate could be on the table as early as the next meeting in September.”, he said.
Finally, while many analysts see the recent declines in stocks on Wall Street as a welcome respite from the record highs reached this year and the expensive nature of the stock market after it became known that prices were rising faster than corporate profits, the stock market has shown concern about the upcoming Fed meetings and how they could affect the markets.
Keep reading:
- Wall Street suffers 1,000-point drop on Dow Jones
- Asian stocks plunge amid fears of US recession
- 114,000 jobs added and unemployment rises in the US in July