Will interest rate cuts help the U.S. economy achieve a soft landing? To a certain extent, it depends on the degree of underlying weakness in the U.S. economy. A weak job market and rising credit defaults could pose a double threat to the U.S. economy.

With the official end of the third quarter of 2024 after September 30, there are only five weeks left until the U.S. election on November 5. A survey just concluded by the National Association for Business Economics (NABE) showed that among 32 professionals, 39% consider "monetary policy mistakes" as the "biggest downside risk to the U.S. economy in the next 12 months," followed by "the outcome of the U.S. presidential election" (23%) and "an expansion of conflicts in the Middle East or Ukraine" (23%).

The survey results also show that respondents are highly concerned about the Federal Reserve's monetary easing policy, hoping that as inflation steadily declines to the target level of 2%, the Fed can avoid a significant rise in unemployment rates again.

As the Fed initiates the interest rate cut cycle, the risk of a U.S. economic recession seems low. Jerome Powell, Chairman of the Federal Reserve, stated on September 30 that further rate cuts would be made, but insisted that the Fed "is not on any preset path," and that the recent 50 basis point rate cut should not be interpreted as future actions will take the same aggressive approach. This is a cold shower on the market's aggressive expectation that the Fed will cut rates by another 50 basis points. After suppressing the market's expectation of a large rate cut, Powell did not reveal a specific action plan for the next step.

Several Wall Street analysts have said that whether the Fed's rate cuts will help the U.S. economy achieve a soft landing depends to a certain extent on the degree of underlying weakness in the U.S. economy. A weak job market and rising credit defaults could pose a double threat to the U.S. economy. Before the first rate cut, inflation data was the most noteworthy data. But now that the Fed has started the rate cut cycle, labor market data will be more noteworthy than inflation.

On October 1st, local time, dockworkers at dozens of ports from Maine to Texas went on strike, with these ports handling about half of the goods entering and leaving the United States. The strike involved 45,000 union members and could lead to the closure of ports along the East Coast and the Gulf Coast. With five weeks left until the presidential election, there are concerns that this strike will block a large amount of U.S. trade flow, severely disrupt the U.S. supply chain, and if it lasts for several weeks, it could lead to price increases and delays in goods reaching households and businesses, shaking the U.S. economy.

The strike by members of the International Longshoremen's Association could lead to the shutdown of 36 ports. The union accused the United States Maritime Alliance, which represents the ports, of continuing to "obstruct" reaching an agreement before the contract deadline. "The ocean carriers represented by the United States Maritime Alliance want to enjoy the billions of dollars in丰厚 profits they earned in 2024, while they offer unacceptable wage待遇 to the dockworkers of the International Longshoremen's Association, which we refuse," the International Longshoremen's Association said in a prepared statement. "The dockworkers of the International Longshoremen's Association deserve to be rewarded for the important work they have done to maintain the development and growth of American commerce." The union also accused freight forwarders of significantly increasing container prices in recent weeks, thereby "deceiving customers." The union said this would lead to increased costs for American consumers.

Previously, the strike by the International Association of Machinists and Aerospace Workers made a lot of noise, and the production of Boeing 737 aircraft has been "fully suspended." Boeing said it had given the striking mechanics the "most generous final offer," including "higher raises and more bonuses," equivalent to a 30% wage increase over four years. In response, the union said the offer was lower than expected, and they would not vote on the contract before the deadline set by Boeing. The union also complained that Boeing had announced the negotiation terms to the public and the media before discussing with the union, making them look greedy.

Jeffrey Young, former Global Head of Foreign Exchange at Citigroup and co-founder and CEO of DeepMacro, pointed out to Caijing that the United States has not seen this type of labor radicalism for a long time, and it is also one of the reasons why inflation will continue at the end of this cycle. Before the outbreak of the epidemic, most unions signed contracts for four to five years, and even if wages increased, they were very low. The unexpected inflation in 2021 crushed real wages, and now it is time for revenge. Because the unemployment rate is very low, this gives unions the ability to bargain. In addition, employers are reluctant to fire workers because the cost of laying off workers in 2020 was that they had to rehire them at much higher wages. If labor productivity increases, wages should rise. But a new feature of many union settlements recently is the restriction on technology. In addition to demanding higher wages, members of the International Longshoremen's Association demand a comprehensive ban on the automation of cranes, gates, and container handling trucks used for loading and unloading goods.The United Auto Workers (UAW) stated on September 25th that union members representing Ford's tool and die department at the River Rouge Complex have reached a preliminary agreement with the company. The agreement with UAW Local 600 enhances job security, "mitigates the impact of advancements in 3D printing technology," and eliminates wage disparities for skilled workers, "ensuring comprehensive fairness and equal pay for equal work." Ford's Rouge Complex in Dearborn, Michigan, employs around 6,000 workers, with over 500 in the tool and die department.

Chicago Federal Reserve President Goolsbee stated on September 30th that policymakers appropriately began lowering interest rates earlier this month due to some "warning signs" in the labor market. He expressed concern over a prolonged dockworkers' strike, as it could affect supply chains.

Should the strike drag on, businesses will be forced to pay shipping companies for delays, leading to late deliveries of some goods during the holiday shopping season—potentially affecting the delivery of any product from toys or artificial Christmas trees to cars, coffee, and fruits. The strike could immediately impact the supply of perishable imported products like bananas. According to data from the American Farm Bureau Federation, ports that may be affected by the strike handle 3.8 million tons of bananas annually, accounting for 75% of the national supply. As retailers face tight supplies, Americans may also face higher prices. "If the strike continues, it will cause significant delays throughout the entire supply chain, and this chain reaction will undoubtedly extend into 2025, causing chaos across the entire industry," said Jay Dhokia, founder of supply chain management and logistics company Pro3PL. Dhokia added that East Coast ports are not the only ones at risk of disruption, as pre-strike concerns have already caused many goods to shift westward, exacerbating route congestion and increasing demand pressure. He said that the international community will also feel the impact—especially in places like the UK, as the US is their largest trading partner.

In a Q&A session following his speech on September 30th with Morgan Stanley economist Ellen Zentner, Powell indicated that there may be two more rate cuts this year, but smaller, by 25 basis points, if economic data remains consistent. This aligns with the Federal Reserve's September dot plot, but contrasts sharply with market expectations for more aggressive easing: "Overall, the economy is in good shape, and we intend to use our tools to maintain it. Federal Reserve officials are focused on lowering interest rates to a level that neither stimulates nor weakens economic activity."

Powell is confident in the US economy and believes that inflation will continue to cool. He stated that US economic conditions provide the possibility for further deceleration of inflation, and the policy stance will become neutral over time. He and his colleagues will seek to balance reducing inflation with supporting the labor market and allow data to guide future actions: "Looking ahead, if the US economy develops roughly as expected, the policy will move towards a more neutral stance over time. But we have no preset path, which means that if the job market deteriorates significantly, more substantial rate cuts may be made. The risks are two-way, and we will continue to make decisions at each meeting."

Federal Reserve officials have expressed their desire to achieve a so-called soft landing, which is to reduce the inflation rate without significantly increasing the unemployment rate.