This week’s employment report will be critical for Fed interest rate policy. Investors, economists, and investors eagerly await the beginning of Federal Reserve interest rate cuts this cycle, and the first cut is likely to come on September 18. However, the size and pace of cuts will depend on U.S. economic data, especially labor market and inflation reports.
The United States Federal Reserve building in Washington, D.C. Photo by Smith Collection/Gado/Getty … [+]
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Jobs Data Will Be Critical For Fed Policy
The August 2024 employment situation report — known informally as the monthly jobs report — will be released on September 6. This will be the most important labor market report of the month, and it will be critical for market expectations of Fed interest rate policy — especially following the large 818,000 job downward revision to payrolls added in the 12 months through March 2024.
Other labor market data will also be critical for the future of Fed policy.
The July 2024 Job Openings and Labor Turnover Survey data have softened but still remain strong, with almost 7.7 million job openings for July 2024, according to the BLS report released this week. While this series has falling since March 2022, there are still around 700,000 more open jobs than before COVID.
Meanwhile, weekly jobless claims have been low and they are important, although to a much lesser degree than the monthly jobs report.
U.S. job openings were almost 7.7 million in July 2024, which was almost 700,000 above pre-COVID … [+]
U.S. Bureau of Labor Statistics, Job Openings: Total Nonfarm [JTSJOL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/JTSJOL, September 4, 2024. Prestige Economics. The Futurist Institute.
September Fed Rate Cut Currently Expected To Be 0.25%
The Federal Reserve is expected to cut interest rates on September 18. Based on currently available market indicators, the Fed is expected to cut rates by 0.25%.
Before the Jackson Hole speech on August 23, the CME FedWatch tool reflected that a 25 basis point rate cut was about 71.5% likely, while a 50 basis point rate cut was 28.5% likely. Since then, the probability of a 50 basis point rate cut has risen significantly.
As of September 4 at 4:00 pm ET, the CME FedWatch tool reflected that the odds of a a 50 basis point rate cut on September 18 is 45%. However, a 25 basis point rate cut remains more likely, with a 55% chance according to the CME FedWatch Tool.
The CME FedWatch Tool reflects that there is a 55% chance of a 25 basis point rate cut on September … [+]
CME FedWatch Tool. Retrieved from https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html on September 4, 2024. Prestige Economics. The Futurist Institute.
Jobs Report Could Change Fed Rate Cut Expectations
If the August U.S. jobs report is disappointing when it is released on September 6, the odds of a 50 basis point rate cut will likely increase further. A greater chance of a 50 basis point rate cut would likely be bearish for the greenback but supportive of equities, bond prices, industrial metals prices, and oil prices.
However, if the September 6 jobs report is solid, the odds of a 50 basis point rate cut would likely fall, supporting the dollar but potentially weighing on equities, bond prices, industrial metals prices, and oil prices.
What will you be watching for in the U.S. employment report on September 6?
Let me know in the comments below.
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