A photo taken on July 31, 2013, showcases an eagle perched atop the U.S. Federal Reserve building in Washington. The image, captured by Jonathan Ernst for Reuters, accompanies a report discussing recent economic insights from British fund manager abrdn.
During an interview with CNBC’s “Squawk Box Asia,” Kenneth Akintewe, head of Asian sovereign debt at abrdn, shared his perspective on the U.S. economy. While abrdn forecasts a soft landing for the economy, Akintewe warned of potential prolonged slowdowns in 2025. He questioned whether the Federal Reserve might be “sleepwalking into a policy mistake,” citing revised economic data. Notably, the U.S. Labor Department reported 818,000 fewer jobs created between April 2023 and March 2024 than initially estimated.
Akintewe emphasized the lag effect of policy changes, suggesting that if the economy is weaker than current data indicates, significant easing—ranging from 150 to 200 basis points—would be necessary and take up to eight months to influence the economy. This delay could result in noticeable economic differences by the latter half of 2025.
Akintewe also criticized the focus on the magnitude of potential rate cuts, questioning the rationale behind maintaining a 5.5% policy rate when inflation is near 2.5%. He commented on the uncertainty in the current environment, implying that a lower policy rate might be more appropriate.
Recent data shows the personal consumption expenditures (PCE) price index, a favored inflation measure by the Fed, rose by 0.2% last month. This supports expectations for a smaller rate cut. According to the CME FedWatch Tool, there is a 70% likelihood of a 25-basis-point cut at the upcoming Fed meeting, with a 30% chance of a 50-basis-point reduction.
A spokesperson for the Federal Reserve declined to comment on these matters when contacted by CNBC. The insights shared by Akintewe highlight ongoing economic uncertainties and the challenges faced by policymakers in navigating them.
Original Story https://www.cnbc.com/2024/09/02/is-the-fed-sleepwalking-into-a-policy-mistake-abrdn-analyst-calls-for-faster-rate-cuts.html
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