There is a 35 percent probability of a US recession, according to an economist.
Concerns about the United States entering a recessionary period contributed to a decline in 10-year Treasury yields on Aug. 5, with other major assets also suffering losses.
The dismal employment data has stoked fears that the United States could soon enter a period of recession, leading to investors pulling out money from assets they deem risky.
Recession Risks, Interest Rates
All eyes are now on the U.S. Federal Reserve, with investors looking at whether the agency would cut interest rates, and, if so, by how much. Rates are currently sitting in a range of 5.25–5.5 percent, a level maintained since July last year.
“Such an outcome would constitute a notable change in the Fed’s policy narrative, which would also need to be accompanied by significant revisions to their economic projections.”
The Fed has consistently said that it does not intend to bring down interest rates unless inflation comes down to its target of 2 percent. Inflation has been hovering at or above 3 percent since June last year.
ING is sticking with its prediction of the Fed implementing three, 25 basis-point cuts this year, for a total cut of 75 points. However, “risks do increasingly appear to be skewed to more aggressive action, especially in early 2025 we suspect,” it said.
“The Fed remain wary about inflation, but this week’s employment cost index and unit labor cost data should really have boosted their confidence that inflation is on the path to 2 percent. Their focus needs to be the state of the jobs market.”