The US labor market saw non-farm payroll job gains of 177,000 in the month of April, above expectations. While the unemployment rate held at 4.2%, is this economic data print enough to encourage the Federal Reserve to cut interest rates at its May FOMC meeting next week?
Wells Fargo Head of Global Fixed Income Strategy Brian Rehling outlines the kind of "hard data" that Fed officials will need to see that will enable them to start cutting rates, forecasting cuts to possibly come in the summer months as the economic impact of President Trump's tariffs become more clear.
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Joining us now with more, we got Brian Relling. He is Wells Fargo's head of global fixed income strategy. Brian, great to speak with you. I also want to mention the president couple of minutes ago posting on Truth Social about gas prices going down, saying no inflation. The Fed should lower its rate. Will the Fed lower interest rates soon?
Um, well not at the next meeting. You know, I think we have to wait for kind of the hard data to come in, uh, that shows that the economy is slowing a little bit more. This jobs report's not going to do it. But I do think by the summer, uh, yeah, I do expect the Fed, uh, to begin to cut rates. Uh, just going to take a little bit more time.
And so, would that be the beginning of aggressive cutting or is that just something that is a one-off and see how it's ingested by the economy after seeing a trend of data that would actually lead them to that first cut of the year?
Yeah, I I don't think it's going to be a flurry unless we're in a recession. That's not our expectation. Um, I do think we'll get two or three cuts before the end of the year or into early next year. Uh, so moderate cutting, I would say, um, really need to wait to see not only the jobs numbers, uh, the employment market start to roll over a little bit more, which I think will come. Um, nothing drastic, but, uh, that will give them some support, uh, to cut. And also, I think they want to see those inflation numbers, make sure that the tariffs don't flow through, uh, and we start seeing a lot higher inflations. But, as you mentioned, um, you know, oil gas prices coming down. So there are some positives on that front as well.
Well, it's interesting because we were speaking with Steve Sosnick over at Interactive Brokers earlier in the program, and he was saying that for the Fed to cut by this summer, we'd have to have recessionary economic pain happening in the data. But I hear you saying that you do expect those rate cuts to come and and start by potentially this summer. How much economic pain do you anticipate coming to justify those kinds of cuts?
Well, I do expect we'll start to see, uh, as the tariff impact, uh, shows up in the data, we'll start to see, uh, the employment market, uh, get a little worse. Um, and, you know, we'll be watching those inflation numbers really closely because I think the Fed would be comfortable going ahead and cutting rates, uh, if they're confident inflation is going to, you know, not start to move higher again, um, as would be a concern with, uh, some of the tariffs. So, you know, it's just going to take time to see that. Now, is it a guarantee they're going to cut? No. Um, you know, obviously, if things roll over really hard, they they will they will be cutting. But, you know, we're kind of looking for that soft landing, uh, a window where the Fed can cut, you know, two or three times. Maybe it's not every meeting, maybe it's every other meeting, uh, through kind of the late summer and fall.
