The upcoming non-farm payrolls data report for August could provide clarity on whether the FOMC will cut rates by 25 or 50 basis points. Economic indicators suggest a weakening labor market, and a lower-than-expected print on Friday could trigger significant rate and dollar movements, as MUFG FX analysts point out.
US Inflation Trends Downward as FOMC Shifts Focus to Jobs Data
Recent consumer confidence data showed an increase in confidence, but the jobs index worsened, indicating a potential rise in the unemployment rate. The Fed’s assessment of the labor market has shifted following a significant downward revision in non-farm payrolls data. This revision could impact the Fed’s projections of labor market capacity, influencing the upcoming SEP release in September.
In June, the unemployment rate was forecasted to be 4.0% in Q4 2024, with core PCE inflation at 2.8%. However, recent data shows core PCE inflation at 2.7% and the unemployment rate at 4.3%. A weak jobs report on Friday could lead to further revisions in the SEP release, potentially prompting a 50bps rate cut by the FOMC.
Leading up to Friday’s report, other labor market indicators will also play a role in shaping expectations. If data points to a weaker labor market, yields may decrease to reflect the risk of a larger rate cut. Our forecast model predicts a downside surprise in the August payrolls report, suggesting a potential weakening of the dollar in the coming days.
Analysis:
The FOMC’s decision on whether to cut rates by 25 or 50bps will heavily depend on the upcoming jobs data report for August. A weaker-than-expected print could lead to significant movements in rates and the dollar, impacting financial markets. Investors should closely monitor labor market indicators and the Fed’s projections to gauge the potential impact on their investments and financial decisions. Stay informed and be prepared for possible market volatility based on the latest economic data releases.