2023-12-10 16:48:00
Employment Data Cools Enthusiasm for Possible Interest Rate Cut in March
The latest employment data in the US has tempered expectations for a potential interest rate cut in March. This news comes as the labor market data shows a slowdown, but not a drastic one.
According to the data, the number of vacancies has decreased and the addition of new jobs is averaging between 100,000 to 150,000 per month. The rate of wage growth continues to moderate, while the unemployment rate has seen a moderate upward trend, with a slight retreat recorded last month.
In November, the US added 199,000 new jobs, marking an increase from the previous month. However, this was below the average monthly increase of 240,000 over the previous year. Sectors such as government, healthcare, and manufacturing saw the most significant increases in employment, while the retail trade sector showed a decrease.
Hourly wages also saw a monthly increase, slightly higher than expected, resulting in a slight moderation in the annual rate of hourly wage growth.
However, despite these labor market trends, the US stock market continues to receive support for a potential “soft landing” scenario, signaling that economic activity in the country is moderating. The anticipation for the Federal Reserve’s interest rate decision this week has a 97.1% probability of the interest rate remaining unchanged.
Meanwhile, a separate report on the improvement in productivity in the US shows a growth rate of 5.2% in the third quarter, indicating a trend based on the implementation of new technologies.
However, the decline in American bond yields in the past month occurred while the steepness of the yield curve decreased, which is unusual given expectations for a potential interest rate cut. The negative correlation between the bond yield and the stock index weakens the “natural” protection provided by bonds against the risk of declining stocks over the past twenty years.
As the Federal Reserve is expected to meet this week, it is anticipated that the central bank will persist with a “hawkish” message, downplaying the talk of further interest rate hikes, but reinforcing the message of “higher for longer.”
Overall, the latest employment data, along with the stock market rally, are expected to influence the Fed’s position, not only in their messaging but in the balance of risks to inflation forecasts, which are expected to be less biased upwards.
Investors are closely monitoring these developments, as they could have implications for both the bond and stock markets in the US.
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