....very unlikely unemployment stops rising just because the Fed does a 50bps rate cut. Especially when the consumer is hurting and worried and uncertain about near term future with electoral uncertainty, war, AI.
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At the #FOMC speech, Powell mentioned the Fed expects unemployment to peak at 4.4%and stay there through the end of 2025. This was a bold statement and set him up for a lose-lose scenario.
The chart indicates that once unemployment has bottomed and started to curve back up, it didn't top out or move sideways until it was over the 5.8% average unemployment rate line
100% of the time. (This holds true back to the 1940s before the chart shows).
The lose-lose scenarios the Fed now faces:
1) Powell verbally stated, "Peak at 4.4%". If we see higher than that, the markets may not react well. Which would cause reason for more cuts (and potentially more significant than .25).
2) If he is successful, it could reignite inflation. Inflation typically peaks when unemployment bottoms. A simple example is low unemployment causes a more competitive job market. Thus, higher salaries and increased consumer spending allow companies to raise prices.
