Cleveland added that while the US economy is in robust health, “there has definitely been a slowdown, the unemployment rate remains very low, but there are also signs of weakness there".
But George Brown, senior US economist at Schroders, was more upbeat about the health of the US economy.
He said one reason the jobs data in the US has weakened is that migration has increased, so the number of workers has increased at a faster pace than the number of available jobs.
However, as the number of available jobs remains robust, he does not regard this as a problem.
Cleveland said that whereas a year ago the US economy was generating 250,000 new jobs per month, the number is now around 120,000 per month.
Gerit Smit, who runs the Stonehage Fleming Global Best Ideas fund, said the move to cut rates now is to “protect” the US economy, and added that with interest rates still at 5 per cent, there is plenty more scope to cut if economic conditions deteriorate further.
What next?
In terms of what comes next, Brown said while the US economy is performing well, the bigger issues, such as the size of the deficit, remain unaddressed.
He commented that the budget deficit in the US is high considering the extent of recent GDP growth and the low rate of unemployment.
Deficits should be falling when unemployment is low as tax revenue is going up, while unemployment benefit and other social costs come down.
Economists call this effect the fiscal stabiliser.
Rising budget deficits at a time of low unemployment would usually be expected to be inflationary, as they inject demand in to an economy that may already be near to full capacity.
Stock markets were quick to embrace the significance of the rate cut, with the S&P 500 hitting a record high, and the dollar weakening.
Jones said that, from a bond market perspective, he expects a short-term rally in riskier bonds as a result of the rate cut, but he believes if rate cuts keep happening, this could spook markets into fearing a recession and lead to a sell-off of risks assets.
Brown said equity markets rallied as investors were reassured that a recession is not imminent but also benefit from the risk free rate being lower.
david.thorpe@ft.com
