Strong Non-Farm Employment Suppresses Rate Cut Expectations
Nick Timiraos points out that Federal Reserve officials tend to take a wait-and-see approach, with both Goldman Sachs and Barclays pushing back their forecasts to July. The trajectory of Fed policy will still depend on future data.
(Background: Bitwise forecasts that the “Big Four U.S. Brokerages” will open Bitcoin ETFs by the end of the year. Is a true bull market for cryptocurrency about to arrive?)
(Context: Is the U.S. shortchanging its allies in Taiwan, Japan, and South Korea? Trump: “I am not sorry at all; imposing a 145% tariff on China is what they deserve.”)
April Non-Farm Employment Report Surpasses Expectations
The U.S. April non-farm employment report exceeded expectations. While it spurred a significant rise in U.S. stocks and cryptocurrencies, it also dampened market expectations for a rate cut by the Fed in June.
Nick Timiraos, a reporter for The Wall Street Journal known as the “Fed’s mouthpiece,” stated that the job market has not shown signals necessitating a rate cut, leading officials to likely remain cautious until clearer turning points emerge.
Timiraos: June Rate Cut Chances Greatly Reduced
According to data released by the U.S. Department of Labor, the non-farm employment population in April increased by 177,000, surpassing market expectations of 138,000, indicating that hiring activity remains resilient. The unemployment rate held steady at 4.2%, while the labor force participation rate slightly rose to 62.6%. Although data from February and March were revised down by a total of 58,000, the overall trend did not show significant weakness.
Timiraos pointed out that for a rate cut to occur, a significant rise in the unemployment rate would need to be observed. However, April’s data did not indicate a widespread decline in job vacancies, which leaves the Fed with insufficient basis for a shift in policy ahead of next week’s meeting, making it highly likely that they will remain on the sidelines and possibly avoid signaling any readiness to cut rates in June.
Timiraos further noted on X that if calculated without rounding, the April unemployment rate was actually 4.187%, slightly up from 4.152% in March, indicating overall stability. He emphasized:
- Over the past six months, the U.S. has averaged 193,000 new jobs per month, supporting the vitality of the job market.
- The number of permanent jobless individuals in April was 1.9 million, a new high for this cycle but only accounting for 1.1% of the civilian labor force, which does not constitute policy pressure.
- The total employment index showed a year-on-year increase of 5.3%, highly correlated with nominal GDP growth, indicating that economic activity remains expansionary.
- Even excluding government, education, and healthcare sectors, employment in March and April saw increases of 96,000 and 97,000, respectively, countering some viewpoints that claim employment figures are “beautified.”
Additionally, Timiraos observed that some individuals who had not previously sought work have begun returning to the labor market, a change that aligns with the Fed’s rate cuts last autumn, suggesting that expectations of easing policies are gradually transforming into momentum in the real economy.
June Rate Cut Probability Plummets to 34%
This report has also caused a sudden shift in market sentiment that had previously bet on a June rate cut. The CME FedWatch tool indicates that the probability of a June rate cut has dropped from 75% last week to 34%. Both Goldman Sachs and Barclays have now pushed back their forecasts for the first rate cut to July.
Goldman Sachs, Barclays: Rate Cut Forecast Delayed to July
Following the robust non-farm data release, Goldman Sachs and Barclays have concurrently revised their forecasts, shifting the Fed’s anticipated first rate cut from June to July. Goldman noted that the April employment data indicates stable underlying job growth at an increase of 149,000 jobs per month, reflecting that economic activity has not shown signs of significant slowdown, leaving the Fed without urgent reasons to change direction. The bank still anticipates three rate cuts of 25 basis points each in 2024, scheduled for July, September, and December.
Barclays believes that delaying until the end of July would allow decision-makers to observe more changes in the labor market and to wait for the uncertainties surrounding tariffs and fiscal policies to clarify before making a decision. Both institutions emphasized that if subsequent data remains strong, the timing of rate cuts may be further postponed.
Trump Again Calls for Fed to Cut Rates
Despite the fading expectations for a rate cut, Trump, who continues to pressure the Fed, quickly posted on Truth Social claiming, “There is no inflation; the Fed should cut rates!”
Gas prices have just dropped below $1.98 per gallon, marking a multi-year low, grocery (including eggs!) prices are down, energy prices have fallen, mortgage rates are decreasing, employment is strong, and more good news is on the horizon as billions of dollars are flowing in through tariffs. As I said, we are now just in a transitional phase; we have only just begun! Consumers have waited for several years to finally see prices drop.
Now that there is no inflation, the Fed should cut rates!
Rate Cut Progress Requires Monitoring More Data
The April non-farm report is the last labor market indicator before the Fed’s May meeting, showing that the U.S. economy is not experiencing a significant slowdown, and there is a lack of pressure to force the central bank to lower interest rates in the short term. The market will next focus on CPI, PCE, and other price data, as well as comments from Fed officials, to see if July will indeed become the starting point for a policy shift.
In the tug-of-war between inflation and employment, while expectations for a rate cut have not been completely extinguished, they have become more cautious.
