Jerome Powell indicated that if the economy continued to evolve as expected, there would be two additional rate cuts by the end of the year for a total of 50 bps, therefore logically a cut of 25 bps in November and a another in December.
But now, the markets want more and still anticipate an additional 75 bps of rate cuts this year, that is to say at least another 50 bps cut during one of the next two meetings… that’s what ‘indicate the probabilities of a rate cut via Futures Fed Funds with a 65% chance for the “75 bps scenario”.
Jerome Powell is only repeating what emerges from the latest projections from FOMC members published a few days ago, but the market seems convinced that the Fed will do more. And he saw fit to add that the Fed was “in no hurry to lower rates quickly”, that this would be done “based on economic data”.
Another important sentence in relation to the employment data arriving this week was the following: “the employment market gives a better real-time picture of the state of the economy than GDP”.
This series of statements therefore accentuates the importance of the employment data which will be published this week in relation to the trajectory of the Fed’s rate cuts and in relation to market expectations on the number of rate cuts.
This will start today with the JOLTS figure which measures the number of jobs available: the higher this figure, the more it is a sign of economic vigor and “tension” on the job market, favorable to wage growth (and therefore not calling on the Fed to accelerate the pace of rate cuts).
This figure will be followed tomorrow by the private ADP job creation figure which always precedes the employment report by a few days. But it will be necessary to carefully monitor the weekly unemployment registrations on Thursday. For what ? Because the trend has been declining for several weeks and last week, these unemployment claims fell to their lowest level…in 4 months! So not really a sign of weakness regarding the job market.
The week will end with the American employment report where all components will be scrutinized: job creation, unemployment rate and wage growth.
Any jobs numbers this week will be important because the Fed has mostly pivoted from signs of a small slowdown in the jobs market that emerged this summer. But if the figures published this week are good and reflect the resilience of American employment, this could force the market to reconsider its expectations of a rate cut a little, resulting in a rebound in American rates and the dollar. And therefore a possible temporary headwind for the equity markets in “good news is bad news” mode. To be continued…
