Fed behind the curve, but it doesn’t matter because there is room for a policy response by Investing.com

Investing.com — Fed may be behind the curve on rate cuts, but fears of a US recession are ‘overblown’, Macquarie says, as central bank has ample policy options to reverse damaging course limited at a time when economic fundamentals remain strong.

“We also argue that jitters about the US slowdown are overblown,” Macquarie said in a recent note following the recent economic scare.

A series of softer reports, including July’s jobs report, have fueled fears that the US is headed for recession, prompting many to call for aggressive rate cuts from the Federal Reserve.

Recession fears have eased following economic data, including last week’s better-than-expected jobless claims data.

While acknowledging that the US economy is slowing and the Fed is behind the curve, Macquarie believes it doesn’t matter because “strong fundamentals, excess capital, instant repricing and a huge policy toolkit can reverse positions quickly with limited damage”.

Macquarie’s outlook echoes that of Fed Chairman Jerome Powell, who previously said the central bank would be prepared to act if labor market weakness unexpectedly accelerates.

“Should the labor market weaken unexpectedly or inflation decline faster than anticipated, we are ready to respond. The policy is well positioned to address the risks and uncertainties we face in fulfilling both parts of our dual mandate,” Powell. he said at the July 31 FOMC press conference.

The current backdrop reflects “a twilight without recessions, but also strong recoveries, complemented by lower rates and greater liquidity,” Macquarie said, marking fertile ground for speculation across asset classes.

In this “twilight of abundance”, however, investors must opt ​​for stock picking rather than factor and style strategies, as the latter “would likely fail due to economic and capital market decay”, Macquarie added.