Text/Tsinghua Financial Review, Wang Mao
On July 5, Beijing time, the June employment data released by the U.S. Department of Labor attracted much attention, because not long ago, Federal Reserve Chairman Jerome Powell said that the United States has made considerable progress in fighting inflation, and if the employment data is less than expected, then the Fed's expectations of a rate cut in September will rise. After the release of the data, the market focused more attention on the downward revision of the April and May data, and the employment situation in the US was far less than it seemed.
U.S. employment data for April and May were revised sharply downward
On the evening of July 5, Beijing time, the U.S. Department of Labor released the high-profile June 2024 non-farm payrolls data, as the market rushed to find clues from the data for the Fed to cut interest rates. According to the data, the number of non-farm payrolls in the United States increased by 206,000 in June, compared with an estimated increase of 190,000, and the unemployment rate was 4.1% versus 4% expected.
In this data, the market pays more attention not to the June data itself, but to the revised data for April and May. The number of new non-farm jobs in April was revised to 108,000 from 165,000, and the number of new non-farm jobs in May was revised to 218,000 from 272,000. After the revision, the total number of new jobs in April and May decreased by 111,000 compared with the pre-revision period.
It can be seen that the United States can completely influence market expectations and trends through data, and it is a big deal to make a subsequent correction. Remember that the U.S. non-farm payrolls data for May far exceeded market expectations, prompting the market to believe that the Federal Reserve would postpone interest rate cuts, triggering market shocks, and the prices of gold, silver, and non-ferrous metals fell sharply. The reason is that gold, silver, and non-ferrous metals are denominated in US dollars, and the Fed keeps interest rates high for a long time, and the US dollar remains high, and the prices of these precious metals and non-ferrous metals will be suppressed.
The sharp downward revision of the US non-farm payrolls data for April and May indicates that the US employment situation is far less than market expectations, while the unemployment rate rose from 4% to 4.1% in June, indicating that the US job market is starting to show weakness.
Powell believes that the Fed has made considerable progress on inflation, but has avoided talking about the timing of rate cuts
When the Fed considers its interest rate policy decision, it mainly considers two indicators, employment data and inflation indicators. Regarding the inflation situation, Fed Chairman Jerome Powell said at a recent central bank forum that the Fed has made considerable progress on inflation. However, he also said ambiguously that cutting rates too early could reignite inflationary pressures, and that if the rate cuts were too late, the Fed could cause unnecessary damage to the economy.
Although Powell did not give a specific time for cutting interest rates, his statement on inflation was "dovish" enough. Combined with the performance of the US employment data, the market has raised the probability that the Fed will cut interest rates in September.
For the rest of 2024, the Fed will hold four more interest rate meetings, on July 30-31, September 17-18, November 6-7, and December 17-18 EST. At present, the market expects a probability of more than 60% of the Fed's rate cut in September and about 85% in November.
Switzerland, Sweden, the Eurozone, and Canada have cut interest rates ahead of the United States
Entering 2024, global inflation has cooled from high levels, providing prerequisites for a shift in monetary policy. In Europe, Switzerland, Sweden, and the eurozone have cut interest rates successively, and so far, the Swiss National Bank has cut interest rates twice. Canada, a neighbor of the United States, also cut interest rates by 25 basis points to 4.75% on June 5, the first rate cut by the Bank of Canada since the end of March 2020.
However, the Fed has not relented on when it will start cutting interest rates. However, facts often speak louder than words, and the US already has the conditions to cut interest rates, and for the sake of caution, the Fed may not choose to cut rates in July, but the probability of a rate cut in September is increasing.
This article is edited by Wang Mao
Editor-in-charge丨Ding Kaiyan, Lan Yinfan
Preliminary trial丨Xu Lanying
Final Review丨Zhang Wei
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