“Good news is bad news” has become the portrayal of the US non-farm payrolls report in July. Wall Street analysts believe that this report confirms that the labor market is hot, and the US economy is likely not yet in recession, but ironically, the amazing elasticity of the labor market The Federal Reserve (Fed) will raise interest rates aggressively, and the economic outlook is full of crisis.
The US Department of Labor announced on Friday (5th) that the US non-farm payrolls increased by 528,000 in July, far exceeding the expected 250,000, the highest since February this year, and the unemployment rate reached 3.50%.goldDown, the dollar rose.
Wall Street has been debating whether the U.S. economy has fallen into recession recently, with U.S. gross domestic product (GDP) shrinking for two consecutive quarters, meeting the definition of a “technical” recession, while the two-year and 10-Year U.S. Treasury YieldThe curve continues to invert, adding to the belief that a recession is likely on the horizon.
However, the July non-farm payrolls report confirmed that the U.S. labor market is hot and the economy is not yet in recession, as there has never been a precedent in the past when the U.S. can create 528,000 jobs in a month during a recession. Meanwhile, the unemployment rate of 3.5% is the lowest since 1969, also out of step with a typical recession.
In fact, the hot U.S. job market confirms the Fed’s view that the economy is resilient and can withstand more aggressive rate hikes, giving the market confidence that the Fed will move toward a more aggressive rate hike.
Traders see an 80% chance of a three-yard rate hike when the Federal Reserve meets the next Federal Open Market Committee (FOMC) meeting on Sept. 20-21, according to CME’s FedWatch tool, up from Thursday’s forecast. 34%. There is a 30.5% chance of a rate hike of 2 yards.
U.S. President Joe Biden is celebrating the staggering jobs data with glee, but next Wednesday’s consumer price index (CPI) data will have markets and the Fed even more concerned.
The market expects the CPI data to show continued upward pressure on inflation even following gasoline prices fell sharply in July. The Fed’s move to sharply raise interest rates in response to deteriorating inflation will threaten the economic outlook in 2023, with a “hard landing” increasingly likely.
The consensus view among economists is that they worry that the hardest part of this cycle of rate hikes is yet to come.
Rick Rieder, chief investment officer at BlackRock’s global fixed income division, pointed out that the much stronger-than-expected non-farm payrolls complicates the work of the Fed, which has been trying to create a more benign employment environment to moderate inflation, But the question now is, how high and how long will the federal funds rate increase to bring the inflation behemoth under control?
Frank steemer, an economist at the Conference Board for Economic Affairs, said that although the economy experienced negative growth for two consecutive quarters in the first half of 2022, a strong labor market means that the United States may not be in recession yet, but economic activity is expected to further increase by the end of the year. Cooling down, it is increasingly likely that the U.S. economy will slip into a recession by the end of the year or early 2023.
