“The US Federal Reserve has, thus far, foxed consensus estimates with regard to interest rate cuts in 2024. The US central bank may have reduced the run rate of its Quantitative Tightening programme to $40 billion a month from $95 billion, but it has yet to reduce the Federal Funds rate from the 5.5% level reached in July 2023. As a result, markets’ expectations for six, one-quarter point rate cuts in 2024, with the first coming in March, have been recalibrated to two, with the first in September,” says AJ Bell investment director Russ Mould.
Source: FRED – St. Louis Federal Reserve database, US Federal Reserve
“Sticky inflation is one reason for the absence of the long-awaited policy pivot and a robust jobs market, with strong wage growth, is another – and the pairing of inflation and employment forms the US central banks twin mandate.
“As markets continue to wonder when – and hope that – interest rates will come down, they will continue to study the macroeconomic data just as intently as policymakers, even if this ‘data dependent’ stance increases the risk of policy error. By definition, the data is backward-looking, or concurrent at best, but monetary policy works with an 18-24-month lag, so the Fed is really trying to determine what is the appropriate cost of money for two years’ time, and not for what it should be now or three to six months ago.
“Either way, the coming week’s rash of jobs data is bound to attract plenty of headlines.
“On Tuesday 4 June the US Bureau of Labor Statistics will publish the latest Job Openings and Labor Turnover Survey, or JOLTS. This is one dataset that may make a case for a rate cut sooner rather than later, as the number of job vacancies in the USA is down by 30% from its 2022 peak. That said, the March figure of 8.5 million was still very high by historical standards (and was reached for the first time ever only in March 2021).
Source: FRED – St. Louis Federal Reserve database, US Bureau of Labor Statistics
“On Wednesday 5 June, ADP will publish its monthly payrolls survey, for which the benchmark is the prior month’s addition of 192,000 jobs. Then on Thursday 6 June comes the weekly initial unemployment claims, where the recent run rate is again low by historic standards, at around the 200,000 mark.
“Then comes the big one on Friday 7 June, with the official government payrolls data. There are three things to watch here:
“The first is the headline jobs number. April’s addition of 175,000 was a weaker figure than thought, and Wall Street welcomed that, because it potentially brought a rate cut that bit closer. Perversely, therefore, a weak number could be seen as good news for markets and a high number as bad. Economists will also watch any revisions to prior monthly estimates. If revisions are trending lower, this can be a sign that the US economy is weakening, whereas is they are trending higher this is usually an indication that America’s economy is performing well. For choice, the revisions have actually been negative for some time, to perhaps stoke hopes for that elusive rate cut.
Source: US Bureau of Labour Statistics
“The second figure to watch is the headline unemployment rate. This is again low by historic standards at just 3.9%. However, the jobless rate did bottom at 3.4% in January 2023, and it has trended very slowly upward since then.
Source: FRED – St. Louis Federal Reserve database, US Bureau of Labor Statistics
“Finally, economists and the members of the Federal Open Markets Committee will home in on wage growth. The average American hourly wage reached $34.75 in April, 3.9% higher than a year ago. Policymakers do not want to see too much by way of wage hikes, as this can filter through into demand for goods and especially services, and thus drive inflation. The rate of growth has been cooling for almost two years and that may help to reassure Fed chair Jay Powell and his FOMC colleagues as they inch their way, perhaps, to that first interest rate reduction of this cycle.”
Source: FRED – St. Louis Federal Reserve database, US Bureau of Labor Statistics
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