The United States saw its unemployment rate rise in July, a development that economists say strengthens the case for an interest rate cut by the Federal Reserve.
According to data released Friday by the U.S. Labor Department, job growth slowed more than analysts had anticipated. The economy added only 114,000 non-farm jobs in July, a significant drop from the 179,000 jobs added in the previous month and below economists’ estimate of 185,000 jobs.
The unemployment rate edged up to 4.3 percent, the highest since October 2021 when the economy was still recovering from the COVID-19 crisis. This uptick has sparked fears of an economic slowdown.
“The employment report was surprisingly weak and strengthens the case for a near-term rate reduction,” said Barry Bosworth, an economist and senior fellow at the Brookings Institution, speaking to Xinhua News Agency. “Combined with the price report, it may be a tipping point for the Federal Reserve.”
Desmond Lachman, a senior fellow at the American Enterprise Institute and former official at the International Monetary Fund (IMF), expressed similar concerns. “It is difficult to understand why the Fed has not already started an interest rate cutting cycle when the economy is slowing, real progress is being made in reducing inflation, and downside risks to the economic recovery are now building,” Lachman told Xinhua.
“This heightens the chances that by the time the Fed starts cutting interest rates, it will have waited too long to avoid an economic recession,” he added.
Dean Baker, a senior economist at the Center for Economic and Policy Research, also weighed in on the likelihood of a rate cut. “Barring some big surprises, it can be assumed that the Fed will cut rates in September,” he told Xinhua. “The only real question is whether it is 0.25 percentage points or 0.50 percentage points.”
The jobs report comes after Wednesday’s announcement that the Fed could cut rates in September, adding complexity to the central bank’s decision-making process. Fed Chair Jerome Powell said the labor market was experiencing “ongoing, gradual normalization,” allowing officials to wait and ensure the data shows a reduction in inflation before deciding to cut rates.
Adding to the economic concerns, markets took a nosedive on Thursday after data showed a surprise increase in individuals filing for jobless benefits. The drop marked the worst sell-off this year and prompted investors to worry that the central bank could be waiting too long to start trimming interest rates.
The rising unemployment rate also comes just a few months before November’s presidential elections. “A rising unemployment rate is difficult for an incumbent administration,” said Darrell West, a senior fellow at the Brookings Institution. “But it is not clear whether this is a one-month development or the start of a new trend.”
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U.S. unemployment rate ticks up, strengthening case for rate cut
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