The US Federal Reserve finds itself in a ‘damned if they do, damned if they don’t’ situation with regard to cutting interest rates as the data on which it depends still doesn’t make a conclusive case for moving from its current position.

Last week’s second-quarter US GDP print showed prices rose less than expected at 2.3% against a forecast of 2.6%, yet the economy expanded at a rate of 2.8% against a forecast of 2% and just 1.4% in the first quarter.

At the same time, personal spending and savings data doesn’t suggest the US consumer is tapped out despite negative commentaries from retailers and consumer goods makers.

Core PCE (personal consumption expenditure) figures released last week showed inflation running at 2.6% in June, the same level as May, which again doesn’t suggest the economy is heading for a sharp slowdown – Treasury yields and the dollar index were virtually unchanged after the report.

However, there are increasing calls for the Fed to cut rates on 1 August, with former bank governor Bill Dudley arguing it should have cut already.

That view is echoed by Mark Zandi, chief economist of Moody’s Analytics, who points to repeated downward revisions to the jobs figures and stresses in the financial system caused by the inverted yield curve.

‘They seem to be waiting for something to break,’ says Zandi. ‘By that stage it will be too late’.

For the first time in a long time people are discussing the Sahm Rule, an indicator used by the Fed to establish when the economy has entered a recession.

The rule says a recession is likely to have begun when the three-month average of the national unemployment rate (U3) increases by at least 0.5% above its lowest point of the previous 12 months.

That means the unemployment figure on 2 Aug will assume far greater significance than usual and could provoke a sharp negative reaction.

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