Job market needs to normalize, not deteriorate: Fmr. Fed. Pres.

The Federal Reserve decided to hold interest rates steady on Wednesday, though investor hopes for a rate cut in September still linger on Wall Street. Former St. Louis Fed President and current Dean of Purdue University's Daniels School of Business Jim Bullard joins Morning Brief to discuss his outlook.

Bullard believes Fed Chair Powell has alluded to "September as a key point for the committee." However, he notes there are still a number of economic reports to be released before that meeting, saying "it's possible that it would get derailed." Though overall, Jim states a rate cut at that time would be "appropriate."

Regarding the US labor market, Bullard calls its recent performance "extraordinary." He suggests that investors' main focus is now "all about normalizing" the labor market. While the FOMC doesn't want the situation to "run away from them," Bullard doesn't think the labor market is "in bad shape at all."

"It's more about normalization of the labor market than about deterioration of the labor market," Bullard tells Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

The Federal Reserve appears to be delivering on rates cut hopes the fed deciding to keep interest rates unchanged coming out of the central bank's two day policy meeting in July but fed chair Jay Powell's Dovish comments signaling the central bank could cut rates at its next meeting.

September investors now pricing in an 86.5% chance in totality that the fed could potentially cut rates by 25 basis points at the September meeting according to CME Group's Fed watch tool for more on this.

We wanna bring in Jim Bullard, who is the former Saint Louis fed president.

Great to have you here with us and thanks so much for taking the time here.

I just wanna get your read through on, you know, some of the response that we had heard from Fetcher Jay Powell in the press conference yesterday.

What you make of his tone in comparison to the Jay Powell that, you know, uh well, he's uh uh definitely set up September as a, as a key point for the committee.

Uh I think the market pricing is about right, the 85% there.

Um You do have two inflation reports, you have two jobs reports before that meeting.

Uh So it's possible that uh that it would get derailed.

But uh I think the committee is ready to go.

I think it's appropriate, they're taking on board the uh considerable disinflation that their policy has brought about since uh since they started in 2022.

And um uh so things are looking pretty good for the fed and pretty good for a rate cut in, in September, Jim.

When you take a look at some of the softening that we have seen in the labor market, you have jobless claims rising to the highest level that we've seen in almost a year.

We also saw some, some softening here in the A P AD P print earlier this week.

Is the fed from your perspective.

Are they paying enough attention to, are they closely watching enough?

Some of the deterioration that we are seeing in the labor market?

And is there a real risk maybe that they are waiting a bit too late here if they don't move or they're not going to move obviously until September?

Yeah, unemployment has been creeping up, uh, a little bit, but that was something that the committee predicted would happen.

And, uh, the unemployment rate is still below most people's estimate of the natural rate of unemployment for the US, which would be somewhere in the mid 4% range.

So you could see a little bit more, uh, uptick, I think what was unusual about unemployment was that it was below 4% for such a long time.

You really had this, uh, extraordinary, uh, labor market in the last couple of years.

So, it's all about normalizing on the labor market side.

Now, of course, the committee doesn't want to let that, uh, run away from them.

And so they're certainly, uh, you know, paying more attention to it.

They changed the statement a little bit to emphasize that a little bit more.

But I, I don't think right now that they're in bad shape at all, the, the unemployment rate is still low by historical standards in the US.

And other metrics on the labor market have come into line with where they were before the pandemic and the pre pandemic, uh, labor market was considered a very good one.

So, um, so it's more about normalization of the labor market than about deterioration of the labor market.