The Federal Reserve's "hawkish" rate cut has been criticized.

Recently, Goldman Sachs analysts released a report stating that the latest data from the labor market is not optimistic, with a record drop in the employment rate suggesting a surge in unemployment, making economic recession imminent. Goldman Sachs believes that "Powell made a big mistake".

Only three months ago, the Federal Reserve had cut interest rates significantly by 50 basis points to "combat economic recession", but now it suddenly shifted from "angry doves" to "belligerent hawks". Goldman Sachs Forex strategist Steve Englander posed the question:

"If you are going to be so hawkish, then why did you cut rates in the first place?"

Goldman Sachs believes that the Federal Reserve made a disastrous policy decision and incorrectly chose the timing for its hawkish shift, noting that "objective third-party workforce market tracking data indicates that signs of a collapse in the labor market are emerging."

Goldman Sachs economist Manuel Abecasis pointed out that since September, the proportion of unemployed workers finding jobs within a month has dropped by 7% to 21%, marking the largest two-month decline on record and also the lowest level since 2014. This steep drop in the employment rate may raise concerns about a significant increase in unemployment.

Goldman Sachs attempted to explain this recession signal by proposing three possible factors:

Firstly, the employment rate of foreign workers has significantly decreased, dropping by about 10% in recent months, accounting for approximately 2 percentage points of the total decline in employment rate. The immigration policies that the Trump 2.0 administration may implement could make employers even less willing to hire these workers.

Secondly, the employment rate of trade and transportation workers has dropped by about 10%, accounting for another 2% of the total decline in employment rate. This is partly due to the seasonal fluctuations brought about by the Thanksgiving holiday in November, which led to a reduction of 0.028 million jobs.

Thirdly, the increase in the number of unemployed workers over 65 retiring in November has resulted in a significant decline in the employment rate for this age group, falling by approximately 15% compared to September levels, and 13% lower than the average level in 2019. This accounts for 1% of the total decline in employment rate.

However, although these three factors can explain a 5% decline in the employment rate since September, looking at the latest data from the Philadelphia Federal Reserve Banks, it can be noted that the employment increase rate in the second quarter is negative, with a significant downward revision of the previously reported 1.1% growth.

Goldman Sachs stated that the steady decline in employment rates over the past year aligns with a significant easing of the labor market in 2024, which is 'not yet stable,' and this may signal an impending downturn in the labor market, or it may have already arrived.

Editor/ping