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The jump in the unemployment rate “points to a recession in 2025”, Gary Clyde Hufbauer, nonresident senior fellow at the Peterson Institute for International Economics, told Al Jazeera. “I’m expecting the [US] Fed to start cutting the policy rate in September, and to continue cutting in subsequent meetings. That response will probably ensure a shallow recession,” he added.
The equity markets, too, reacted in fear of a recession. The Dow Jones average tumbled more than 700 points – almost 2 percent – in afternoon trading Friday, and the broader S&P 500 fell 2 percent, with Wall Street banks calling for bigger and more rate cuts than had been expected so far.
Economists at Goldman Sachs and Citigroup, among others, revamped their expectations to a half-point rate cut in September as well as in November, and a quarter-point rate cut in December.
All of this falls on the back of a week of weak data, including a slowdown in manufacturing and negative employment sentiments, which points towards an economic downtrend.
But not everyone agrees with this scenario.
“We don’t see a recession even though the stock market today is behaving like it anticipates a recession,” Nancy Vanden Houten, lead economist at Oxford Economics, told Al Jazeera.
“The jobs report was definitely weaker than most economists were expecting and we’re not dismissing the signs of a softer labour market, but there are things going on beneath the surface” that need to be accounted for while looking at the Friday data, Vanden Houten said.