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In line with the August nonfarm payrolls report, former US Treasury Secretary Larry Summers suggested the Fed may be approaching a more significant rate cut.
While the report did not indicate serious economic weakness, it added uncertainty to the Fed's decision-making process for interest rate adjustments this month.
“The data doesn’t show any clear signs of economic distress, but it certainly doesn’t guarantee economic health,” Summers said in a recent interview. He noted that the probability of a 50 basis point rate cut in September has increased from a month or two ago, and is approaching the probability of a 25 basis point cut.
Speaking recently, FED member Waller hinted that the possibility of a recession had strengthened, causing a sudden drop in the markets.
The exact size of the Fed’s first rate cut is less critical than how it responds to the evolving economic landscape, Summers said. “If the economy weakens significantly, they will make larger cuts. If the economy remains relatively stable, they may opt for more gradual cuts, perhaps cutting rates once per meeting,” he said.
*This is not investment advice.