Jefferies’ David Zervos: There is a cogent case for a 75 basis point rate cut

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J Studios

Inflation data and significant employment report revisions justify more aggressive interest rate cuts, according to Jefferies chief market strategist David Zervos.

The strategist highlighted that approximately 1.5 million jobs have been revised away for 2024, calling it “an incredibly large number” during an interview with CNBC.

This substantial correction shifts the Federal Reserve’s focus back to the employment side of its dual mandate, potentially justifying faster monetary policy easing.

“I would certainly argue for” a 50-basis-point cut, Zervos said, though he acknowledged political hurdles to implementing such a move. The strategist even suggested there’s “a very cogent case for 75” basis points, though he doubted such an aggressive cut would be politically feasible.

Zervos connected the employment data revisions to broader economic narratives, particularly the impact of artificial intelligence on productivity. “The AI story is actually maybe bigger than we thought,” he noted, drawing parallels to the 1990s era of low inflation, supply-side improvements, and strong growth. This technological shift suggests policy may be “way too restrictive” given emerging disinflationary pressures.

The strategist offered a striking perspective on AI’s potential impact on employment, suggesting that “a whole cohort of jobs” might disappear rapidly.

“If some of those folks were sitting at the Federal Reserve today, they would actually be cutting even faster,” Zervos remarked, referring to tech entrepreneurs who predict millions of job losses due to AI in the coming years. The Fed, he argued, needs to consider these transitions when setting policy.

Despite potential rate cuts, Zervos noted that certain sectors like construction (ITB [https://seekingalpha.com/symbol/ITB]), (PKB [https://seekingalpha.com/symbol/PKB]), (PAVE [https://seekingalpha.com/symbol/PAVE]) won’t be helped by AI advancements.

“AI is not going to build a building,” he said, highlighting that these industries need actual workers and lower construction costs to improve affordability.

The current employment situation reflects a dramatic shift from what was previously reported. “We sat here watching it every Friday going for a year going, ‘Wow. That’s a crazy big number.’ And it’s just not there.”

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