NEW YORK (CNN/Money) -
One of the economists who was least surprised by Friday's weak July employment report now says the Federal Reserve is going to surprise markets again Tuesday and not raise interest rates.
Robert Brusca of FAO-Economics was virtually alone among major economists last week, saying that the economy was not showing enough strength to add more than 200,000 jobs in the July employment report. The report that showed only 32,000 jobs added by U.S. employers shocked both bond and U.S. stock markets.
Brusca had projected between 100,000 and 150,000 new jobs in the month, which while higher than the actual result was far closer than the consensus forecast of 243,000 new jobs.
But even in the light of the weak employment report, most economists Friday were predicting that the Fed will stick with plans for a widely anticipated quarter-percentage point increase in key interest rates when its policy makers meet Tuesday. Brusca said Monday he thinks this common wisdom is wrong once again.
"I think that, in one fell swoop, the Fed is back to worrying about weakness," he said in a note Monday. "And if it is not worrying about that, it is making a mistake."
Brusca said that the weak jobs report and the trouble the economy is having dealing with high oil prices is an adequate reason for the Fed to stand pat at Tuesday's meeting. He said that what other economists are projecting -- a rate hike August but no hike at the September meeting -- makes less sense than holding rates steady Tuesday and raising rates in September if the economic numbers or oil prices show signs of improvement by then.
"If you need to pause there is no time like the present," he said.
Brusca had said last week that even if the jobs report showed between 100,000 to 150,000 new jobs, that the Fed would stay on course hiking interest rates. But he said the fact that the number was weaker then even he suggested, coupled with a downward revision of the June employment gain, was reason for the Fed to pause.
"Was the Fed set to hike by (a quarter of percentage point)? Yes! Is it still? Well, I don't know for sure, but I don't think so," he said.
Investors seem to be convinced that a rate hike is coming. In trading of Fed funds futures on the Chicago Board of Trade Tuesday, 97 percent of the money being invested predicted a rate hike on Tuesday.
Brusca is worried that the Fed will be concerned about losing face for reversing policy, and about shocking markets if it doesn't hike rates. But he also said that he thinks the Fed wouldn't mind sending the signal to traders who are now betting on a rate hike that they need to pay more attention to world events, not just past policy statements.
-- Brusca is the husband of CNNfn anchor and economics correspondent Kathleen Hays.
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