Slowdown in Job Market Boosts Hopes for a Fed Rate Cut: The latest monthly employment report
in the United States provided evidence that the economy is slowing down,
reinforcing expectations that the Federal Reserve will cut benchmark interest rates in the coming months.

Content

Slowdown in the Job Market

Interest Rate Cuts

The Balancing Act at the Federal Reserve

Federal Reserve Chair’s Testimony

Slowdown in the Job Market Boosts Hopes for a Federal Reserve Rate Cut

– Federal Reserve Chair Powell’s testimony and inflation data will be closely watched this week.

– The employment report released on Friday showed that employers added fewer jobs
in June, and the unemployment rate rose to its highest since late 2021.

– The job market slowdown has bolstered expectations that the Federal Reserve will begin cutting interest rates starting in September.

– Federal Reserve Chair Powell’s testimony before Congress twice next week and the release
The initial readings on June inflation are expected to provide clues on the potential timing of interest rate cuts.

The latest monthly employment report in the United States provided evidence that the economy is slowing down,
reinforcing expectations that the Federal Reserve will cut benchmark interest rates in the coming months.

The U.S. Bureau of Labor Statistics said on Friday that employers added fewer jobs in June than the previous month,
and the unemployment rate rose to its highest level since late 2021.

The Bureau of Labor Statistics also revised the job growth figures for the previous two months downward,
indicating that the Federal Reserve’s high interest rate policy aimed
Slowing economic activity and taming inflation have had their intended effects.

Economists said in reports released on Friday, “Overall, the report aligns with the ongoing slowdown in growth and inflation.
Job gains are still not slowing as fast as expected, but the underlying pace is decelerating.”

Markets Betting on a September Rate Cut

Stocks rose, and Treasury yields fell following the release of the jobs data,
with increased optimism that the U.S. central bank might begin cutting the federal funds rate,
which is currently at its highest level in 23 years.

According to the CME Group’s FedWatch tool, which predicts interest rate movements based on federal funds futures trading data,
traders are pricing in a 77% chance that the Federal Reserve will cut benchmark interest rates
at the Federal Open Market Committee meeting in September.
This compares to a 64% probability priced in a week earlier.

According to recent data, the June jobs report adds to evidence
from other recent growth indicators suggesting the Federal Reserve is tight enough.
Therefore, this data strengthens the likelihood of a rate cut in September,
although this outcome requires continued evidence of moderated inflation in the coming months.

The Balancing Act at the Federal Reserve

Federal Reserve officials have said progress is being made in combating inflation,
but they also stated that they need to see more data confirming that price pressures are under control.

Federal Reserve Chair Jerome Powell said last Tuesday during a discussion at a European Central Bank conference in Portugal:
“We want to be more confident that inflation is moving sustainably toward the
(Federal Reserve’s annual target) of 2% before we start the process of reducing the extent of our policy tightening.”

The latest reading of the Federal Reserve’s preferred inflation measure,
the Personal Consumption Expenditures Index, showed that inflation in the twelve months ending in May slowed to 2.6%.

Federal Reserve officials fear moving too quickly to cut interest rates and risking reigniting inflation.
At the same time, they are closely monitoring labor market trends
to ensure that high interest rates are not causing harm.
The Federal Reserve has a dual mandate of maintaining price stability and promoting maximum employment.

Powell said last week: “We have to balance the two,
and given the strength of the economy, we can handle this carefully.”

Federal Reserve Chair’s Testimony and June Inflation Data Approaching

Powell will provide an overview of current economic conditions before
the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.

Lawmakers are likely to press Powell on the impact of high interest rates
on the economy and the timeline for reducing the federal funds rate,
which affects the costs of everything from mortgages to student loans.

Slowdown in Job Market Boosts Hopes for a Fed Rate Cut

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