More Wall Street banks are calling for more aggressive cuts from the Federal Reserve following last week's jobs report. One of the first out of the gate with a call for two half point reductions at the next two meetings was City Group, joining us now. One of the economists behind that call Veronica Clark, us economist at City Veronica, Good morning, Thanks so much for being with us. So you've had a weekend to think about the impact of the jobs report and some of the other data that we've seen. Are you sticking to that call?

More Wall Street banks are calling for more aggressive cuts from the Federal Reserve following last week's jobs report. One of the first out of the gate with a call for two half point reductions at the next two meetings was City Group, joining us now. One of the economists behind that call Veronica Clark, us economist at City Veronica, Good morning, Thanks so much for being with us. So you've had a weekend to think about the impact of the jobs report and some of the other data that we've seen. Are you sticking to that call?

Yeah, yeah, good morning, Thanks for having me. Yeah. I mean, I think this equity self that we're seeing overnight only maybe furthers that call the sense that maybe the Fed is a bit behind the curve here. I think if the Fed had had this number on Wednesday when they were meeting, we might have seen a cut last week already. I think, especially the Doves, are just going to be increasingly focused on the employment side of that mandate. And it's not necessarily the one hundred and fourteen thousand jobs added, you know, as a bad number. Four point three percent unemployment rate is still generally low, but the trend will just be very concerning to Fed officials, and they're far from neutral, so yeah, you might as well start with some bigger rate cuts right off the bat.

Yeah, yeah, good morning, Thanks for having me. Yeah. I mean, I think this equity self that we're seeing overnight only maybe furthers that call the sense that maybe the Fed is a bit behind the curve here. I think if the Fed had had this number on Wednesday when they were meeting, we might have seen a cut last week already. I think, especially the Doves, are just going to be increasingly focused on the employment side of that mandate. And it's not necessarily the one hundred and fourteen thousand jobs added, you know, as a bad number. Four point three percent unemployment rate is still generally low, but the trend will just be very concerning to Fed officials, and they're far from neutral, so yeah, you might as well start with some bigger rate cuts right off the bat.

And to your point, we've heard from the market, to some extent pricing in sixty percent odds that the FED cuts rates this week, and some of your colleagues at JP Morgan Chase are calling for an emergency rate cut as well. Do you think that the Fed should cut rates before the September meeting?

And to your point, we've heard from the market, to some extent pricing in sixty percent odds that the FED cuts rates this week, and some of your colleagues at JP Morgan Chase are calling for an emergency rate cut as well. Do you think that the Fed should cut rates before the September meeting?

Yeah, I mean, that's that's definitely not our base case, but yeah, I would never say never in a situation like this. In terms of the economic data that would get them there, it does seem a bit unlikely. It really is going to be employment data that is the most important. We won't have another jobs report until early September, so that in that sense, there's not necessarily the economic data that would get them there, but something like equity you know, the decline in equity markets that we've seen that that is a big tightening of financial conditions that could get them a bit worried that things will be slowing even faster.

Yeah, I mean, that's that's definitely not our base case, but yeah, I would never say never in a situation like this. In terms of the economic data that would get them there, it does seem a bit unlikely. It really is going to be employment data that is the most important. We won't have another jobs report until early September, so that in that sense, there's not necessarily the economic data that would get them there, but something like equity you know, the decline in equity markets that we've seen that that is a big tightening of financial conditions that could get them a bit worried that things will be slowing even faster.

Do you think that there's a risk of recession if the Fed doesn't cut rates to the levels that you're looking for?

Do you think that there's a risk of recession if the Fed doesn't cut rates to the levels that you're looking for?

Yeah, to be honest, we actually even have a recession in our base case already. You know, these things are you know, they start very gradually and then at some point you can reach this non linearity and and things weaken much faster. It does kind of feel like we're on the tipping point of that right now, and it might be a bit too late to prevent that slowing altogether. So that's actually in our in our base case already.

Yeah, to be honest, we actually even have a recession in our base case already. You know, these things are you know, they start very gradually and then at some point you can reach this non linearity and and things weaken much faster. It does kind of feel like we're on the tipping point of that right now, and it might be a bit too late to prevent that slowing altogether. So that's actually in our in our base case already.

Is it just about the jobs market? This weaker than expected jobs report from last Friday or what else has you thinking that the Fed needs to make up for lost ground?

Is it just about the jobs market? This weaker than expected jobs report from last Friday or what else has you thinking that the Fed needs to make up for lost ground?

Yeah, it really is about the labor market. That's where we're seeing, you know, most of the weakness. But of course that's probably you know, the biggest underlying support to the general economy as a whole. And if you see the labor market turning, especially if we get to that point where you are seeing the bigger layoffs, and that's really the last step, that's where it's almost a bit too late to prevent the weakening, you would expect to see spending pulling back even more, and spending already has slowed for a lot of this year. Manufacturing, you know, data on manufacturing activity has been a bit weaker, at least in the ism the survey indicators. It does seem that broadly things are slowing down.

Yeah, it really is about the labor market. That's where we're seeing, you know, most of the weakness. But of course that's probably you know, the biggest underlying support to the general economy as a whole. And if you see the labor market turning, especially if we get to that point where you are seeing the bigger layoffs, and that's really the last step, that's where it's almost a bit too late to prevent the weakening, you would expect to see spending pulling back even more, and spending already has slowed for a lot of this year. Manufacturing, you know, data on manufacturing activity has been a bit weaker, at least in the ism the survey indicators. It does seem that broadly things are slowing down.

What if the FED sticks with the messaging that it's been putting out there up to now before we got this Job's report that twenty five basis point move in September is warranted, what would the impact on the economy be.

What if the FED sticks with the messaging that it's been putting out there up to now before we got this Job's report that twenty five basis point move in September is warranted, what would the impact on the economy be.

Yeah, I mean at this point where we're certainly pricing you know that we're going to be getting those bigger rate cuts, so you would have to price that out. That move higher and yields is a tightening of financial conditions, which does seem probably like what the FED doesn't want right now if you're tightening conditions into a weakening. You know, I don't necessarily think they'll tell us right now that you know, yes, it's going to be a bigger fifty basis point cut, but we'll see the data over the coming weeks. You know, we have Jackson Hole towards the end of this month. That might be the avenue to signal that, yeah, we're we're going to start a bit bigger right off the bat.

Yeah, I mean at this point where we're certainly pricing you know that we're going to be getting those bigger rate cuts, so you would have to price that out. That move higher and yields is a tightening of financial conditions, which does seem probably like what the FED doesn't want right now if you're tightening conditions into a weakening. You know, I don't necessarily think they'll tell us right now that you know, yes, it's going to be a bigger fifty basis point cut, but we'll see the data over the coming weeks. You know, we have Jackson Hole towards the end of this month. That might be the avenue to signal that, yeah, we're we're going to start a bit bigger right off the bat.

When it comes to the weakness that we saw in the jobs report last Friday. Are there seasonal factors that play there?

When it comes to the weakness that we saw in the jobs report last Friday. Are there seasonal factors that play there?

Not particularly So. There was some speculation that maybe Hurricane Barrel that hit during the reference period for this July number, maybe that would influence things, Maybe that was causing people to miss work or temporary layoffs. But the BLIS actually told us that for payrolls there wasn't a big hurricane impact. A lot of the weakness we saw really was kind of across the board. It was not in sectors that you would expect to be impacted by by the hurricane. And there are a lot of just you know, fundamental ways that you know, employment should be slowing down in sectors like construction housing. You know, construction is pulled back, Restaurant spending has been pulling back, you know, leisure, hospitality employment might be slowing. Yeah, not nothing too idiosyncratic. I think this is just genuinely a weakening trend.

Not particularly So. There was some speculation that maybe Hurricane Barrel that hit during the reference period for this July number, maybe that would influence things, Maybe that was causing people to miss work or temporary layoffs. But the BLIS actually told us that for payrolls there wasn't a big hurricane impact. A lot of the weakness we saw really was kind of across the board. It was not in sectors that you would expect to be impacted by by the hurricane. And there are a lot of just you know, fundamental ways that you know, employment should be slowing down in sectors like construction housing. You know, construction is pulled back, Restaurant spending has been pulling back, you know, leisure, hospitality employment might be slowing. Yeah, not nothing too idiosyncratic. I think this is just genuinely a weakening trend.

Just thirty seconds left, your colleagues at Goldman Sachs raised their recession risk for the US to twenty five percent. I know you said recessions in your base case, but would you put a number on it?

Just thirty seconds left, your colleagues at Goldman Sachs raised their recession risk for the US to twenty five percent. I know you said recessions in your base case, but would you put a number on it?

Yeah, I mean there, I think there's honestly probably a pretty elevated chance that we're in, you know, the start of a recession right now. Part of the issue is that the official definition of the recession, however, you know NBER defines it, We're not going to know that for a year, year and a half later. You always define the start in retrospect. But these types of you know, moves, you know in the unemployment rate, you know, much more quickly shooting up in the last couple of months. That is what you see at the start of recessions. So I would say there's a good chance we're already in the early stages of it.

Yeah, I mean there, I think there's honestly probably a pretty elevated chance that we're in, you know, the start of a recession right now. Part of the issue is that the official definition of the recession, however, you know NBER defines it, We're not going to know that for a year, year and a half later. You always define the start in retrospect. But these types of you know, moves, you know in the unemployment rate, you know, much more quickly shooting up in the last couple of months. That is what you see at the start of recessions. So I would say there's a good chance we're already in the early stages of it.

Okay, thank you for this, Veronica, really great having you on these days after your call of Veronica Clark us economist at City

Okay, thank you for this, Veronica, really great having you on these days after your call of Veronica Clark us economist at City