'Fed comes late, should have started cutting rates in May'
3' min read
3' min read
"I am absolutely convinced that the Federal Reserve is late in cutting rates. They were supposed to start in May. But fortunately this delay will not cause any serious damage: no well-run company will go bankrupt if the cost of money remains 50 basis points higher for three months too long'. Paul Donovan, chief economist at Ubs Gwm, has no doubts: while in his view the ECB and Bank of England are doing well, the Fed has wasted too much time. "In my view, Fed Chairman Jerome Powell is not doing a very good job,' he comments. 'To say that the Fed depends on data to make its decisions, at a time when macroeconomic data are proving to be unreliable and subject to large revisions, is not wise.
Does the Fed's delay threaten the resilience of the US economy?
No, I don't think so. The economic data give all the evidence that the US economy is heading for a soft landing and not a recession. Retail sales are good, the latest labour data still signal that the economy is creating jobs, profits are rising. Only sentiment indicators (such as consumer confidence indices) are weak. But one should not forget that these indices are very much influenced by the political thinking of those surveyed. They are not so reliable.
But it is true that until now consumption has held up thanks to the savings accumulated during the pandemic by households. Today those savings are fake: isn't there a risk that consumption will come to a halt quickly?
It is true that these extra savings can no longer sustain the US economy. But for middle-class households there is now a different supporting factor: after years of high inflation, real wages have finally returned to growth. This does not fully compensate for the end of the pandemic extra savings, in fact the economy is slowing down, but it is still a support to avoid recession. And then there is a new, positive phenomenon related to female employment.
