Abrdn analyst calls for faster interest rate cuts

Although British fund manager Abdrn predicts the US economy will experience a soft landing, there is still the risk of a prolonged slowdown into 2025, said Kenneth Akintewe, head of Asian sovereign debt at the firm.

Speaking to CNBC’s ‘Squawk Box Asia’ on Monday, Akintewe asked the question: “Is the Fed already sleepwalking into a policy mistake?”

He pointed to economic data such as non-farm payrolls, saying these were later revised to reflect a weaker economic picture. In August, the U.S. Department of Labor reported that the U.S. economy created 818,000 fewer jobs between April 2023 and March 2024 than originally reported.

As part of the preliminary annual benchmark revisions Based on nonfarm payroll figures, the Bureau of Labor Statistics said actual job growth was nearly 30% less than the initially reported 2.9 million between April 2023 and March of this year.

Akintewe said: “Is the economy already weaker than the numbers suggest? [the Fed] should be relaxed already?”

He added that Fed policy changes take time to work through the economy, “so if the economy is weaker than the numbers suggest, they will have to accumulate.” [a] If there is enough easing, you know, 150 to 200 basis points, that will take time.”

“And once you implement that much relaxation, it takes six to eight months to transfer that.” A spokesperson for the U.S. Federal Reserve declined to comment when contacted by CNBC.

If the economy suddenly shows signs of more weakness in early 2025, Akintewe said it will take until the second half of 2025 for the effects of any easing to be passed through the economy, which could look “very different” by then.

He also argued that the market is too focused on predicting the size of any upcoming cut. ‘The other question that no one seems to ask is: why is the policy rate still at 5.5% when inflation is low [to] almost 2.5%? For example, do you need a real policy rate of 300 basis points in this kind of environment, with all the uncertainty we face?”

In the US, data showed on Friday that the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, 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 likelihood of a 50 basis point rate cut later in September.

Currently, markets see a nearly 70% chance of a 25 basis point cut at the Fed’s meeting this month, while the remaining 30% expect the Fed to cut rates by 50 basis points, the report said. CME Fedwatch tool.

— CNBC’s Jeff Cox contributed to this report.