IMF Advises FED to Delay Rate Cuts As US Employment Weakens

The US employment has been showing increasing signs of weakness in 2024, as higher FED rates weigh on the US consumer and the economy. The US Unemployment Claims showed a rise in both initial and continuing jobless claims points to a softening labor market.

Initial claims have hit the highest level since August of last year, while continuing claims have remained elevated for six consecutive weeks. The upward trend in the 4-week moving averages further underscores this potential weakening. These figures suggest a less optimistic employment outlook and could prompt policymakers and economists to closely monitor the labor market for signs of further deterioration.

Weekly US Initial Jobless Claims and Continuing Claims

• US initial jobless claims were reported at 243K, exceeding the estimate of 230K.
  • This is the highest level of initial jobless claims since August of last year.
  • The prior week’s claims were revised from 222K to 223K.
• The 4-week moving average of initial jobless claims increased to 234.75K from 233.75K last week.
• Continuing jobless claims came in at 1.867M, above the estimate of 1.855M.
  • This marks the 6th consecutive week that continuing claims have been above 1.800M.
  • The prior week’s continuing claims were revised slightly down from 1.852M to 1.847M.
• The 4-week moving average of continuing claims rose to 1.851M from 1.839M last week.

Due to the July 4th vacation, there should be minimal impact from malfunctioning seasonals on this week’s data, making it more indicative of employment trends. The increase in both initial and continuing jobless claims highlights a less favorable job outlook.

Comments From IMF in Article IV IMF Staff Report

• The IMF suggests that the Federal Reserve should wait until at least late 2024 before cutting interest rates.
  • They emphasize that it would be prudent for the Fed to hold off on any rate cuts until there is clearer evidence that inflation is sustainably returning to 2%.
• The IMF advises the US to consider scaling back tax exemptions for employer-paid health care and capital gains on the sale of primary residences.
  • They argue that these exemptions contribute to fiscal imbalances and should be reevaluated.
• The IMF highlights the urgent need to reverse the ongoing increase in public debt.
  • They recommend progressively raising income tax rates, including for those earning less than $400,000, to address this issue.
• The IMF also suggests scaling back deductions for mortgage interest.
  • This could help increase tax revenues and reduce fiscal deficits.

While the IMF’s recommendations are aimed at promoting fiscal sustainability and long-term economic stability, they are often met with skepticism. It is unlikely that the Fed or Washington will immediately adopt these suggestions. Policymakers may find the proposals politically challenging and potentially unpopular, leading them to disregard these recommendations. However, the IMF’s advice underscores the importance of cautious monetary policy and the need for fiscal reforms to address structural issues in the US economy.