An eagle is seen above the facade of the Federal Reserve Bank of Washington, July 31, 2013. REUTERS/Jonathan Earnest
Jonathan Earnest | Reuters
While UK fund manager Abdern expects the US economy to see a soft landing, there is still a risk of a prolonged slowdown in 2025, according to Kenneth Akintiwe, the firm's head of Asian sovereign debt.
Speaking on CNBC's “Squawk Box Asia” on Monday, Akintoye asked: “Is the Fed really heading for a policy mistake?”
He pointed to economic data such as nonfarm payrolls, saying they were later revised to reflect a weaker economic picture. In August, the U.S. Labor Department reported that the U.S. economy created 818,000 fewer jobs than originally reported between April 2023 and March 2024.
In its initial annual benchmark revisions to nonfarm payrolls, the Bureau of Labor Statistics said actual job growth was about 30% below the 2.9 million jobs initially reported from April 2023 to March of this year.
“Is the economy really weaker than the headline data suggests and should the Fed start easing monetary policy already?” Akintiwe said.
He added that policy changes by the Fed take time to move through the economy, “so if the economy is weaker than the headline data suggests, they will need to put together a sufficient amount of easing, you know, 150 or 200 basis points, and that will take time.”
“Once you implement that level of easing, it takes six to eight months to get it through.” A Fed spokesperson declined to comment when contacted by CNBC.
If the economy suddenly shows signs of further weakness at the start of 2025, it will take until the second half of 2025 to see the effects of any easing ripple through the economy, which could look “very different” by then, Akintiwe said.
He also claimed that the market is overly focused on predicting the size of any potential cut, asking: “The other question that no one seems to be asking is, why is the interest rate still at 5.5% when inflation has fallen to almost 2.5%? Do you need a real interest rate of 300 basis points in this environment with all the uncertainty we are facing?”
In the United States, data on Friday showed that the personal consumption expenditures price index, the Federal Reserve's preferred measure of inflation, rose 0.2% last month, as expected.
The data appears to support a smaller rate cut, with US interest rate futures pointing to a lower probability of a 50 basis point rate cut later in September.
Currently, markets see about a 70% chance of a 25 basis point rate cut at this month's Fed meeting, with the remaining 30% expecting the Fed to cut rates by 50 basis points, according to the CME Fedwatch Tool.
— CNBC's Jeff Cox contributed to this report.
