Global X Economists: The strong employment report will oblige the Fed to continue aggressive policy

The employment report published on Friday was a significant upward surprise, indicating an addition of 528,000 new jobs in July, compared to an early estimate of 250,000. The strong figure illustrated that the steps taken by the Fed in an attempt to cool the labor market have not yet yielded results. The unemployment rate also fell to 3.5% (compared to an expectation of 3.6%). The participation rate in the labor market also fell to 6.1%, which may only further intensify the spiral in the rise of wage levels.

The Fed clarified at its last meeting that its policy will depend on the economic data, and therefore the strong employment report is expected to lead the bank to continue with the policy of aggressive interest rate increases. The starting assumption now is for an interest rate increase of 0.75% at its next meeting, unless the data indicates otherwise.

In the technology stocks sector, the CHIPS Act benefits the American economy and the manufacturing sector, since it provides incentives for the establishment of factories. It also reduces dependence on Chinese manufacturing and protects the American supply chain from geopolitical instability. It seems that the law has already been priced in the shares of the chips, which climbed in the last month.

So far, the earnings report season indicates that there is a certain deterioration in business sentiment, with more and more companies reporting a decrease in demand. However, analysts still expect an acceleration in growth in the second half of the year.

The situation in the employment market is very good, but the consumer is adversely affected by inflation. So far, only 16% of companies in the private consumption sector have published their reports, and this is the sector that should be most affected by inflation.

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