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After the U.S. employment data is upset, the market speculates on the possibility of the Federal Reserve's aggressive interest rate cuts
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Hello everyone, today XM Forex will bring you "[XM Group]: After the US employment data is upset, the market speculates about the possibility of the Federal Reserve's aggressive interest rate cuts." Hope it will be helpful to you! The original content is as follows:
The latest non-agricultural employment data released by the United States is surprising, with only 22,000 new jobs in August, far lower than market expectations. The weak jobs report was like a thunder in the ground, igniting investors' concerns about a slowdown in the U.S. economy and also brought about a dramatic shift in market expectations for the Federal Reserve's monetary policy. The originally generally predicted moderate rate cut path is now being replaced by more aggressive rate cut expectations.
Employment Report reveals hidden economic concerns
The data is far lower than expected, and the economic slowdown signal is obvious
The US Department of Labor released on Friday showed that only 22,000 new jobs were created, far lower than the average predicted by economists. This data is not only lower than market expectations, but also in sharp contrast to the performance in previous months, highlighting the loss of momentum of the US economy.
CressetCapital founding partner and chief investment officer Jack Ablin bluntly stated: "This is already two disappointing job reports in a row, and the signs of a weakening economy cannot be ignored."
He further pointed out that Fed Chairman Powell has always emphasized the importance of full employment, which may prompt the Fed to adopt a larger easing policy than originally planned to cope with downward pressure on the economy.
The weakness in labor market triggered a chain reaction
The weakness in employment data not only reflects the fatigue in labor market, but also sounds the alarm for investors. If jobs continue to decrease, it may indicate a series of economic problems such as slowing consumption expenditures and shrinking corporate investment.
PlanteMoranJim Baird, chief investment officer of Financial Advisors, analyzed: "If investors focus on the positive news of the Fed's interest rate cut, the stock market may be supported. But if the market interprets this report as a signal that the labor market has further deteriorated and the economy continues to weaken, the stock market may face downward pressure."
This dilemma has caused investors to sway between optimism and prudence.
Expectations for Fed rate cuts have risen sharply
From moderate rate cuts to aggressive easing
Before the jobs report was released, the market generally expected the Fed to cut interest rates by 25 basis points at its September 16-17 meeting, which will be the first rate cut since 2024. However, weak employment data have prompted the market to adjust expectations quickly.
According to LSEG data, as of now, federal funds rate futures show that the probability of a 50 basis point cut this month has risen to 8%, while the probability of a 25 basis point cut is still as high as 92%.
Blair Shwedo, head of investment-grade sales and trading at USBank, recalled that when the Fed started a cycle of interest rate cuts in September 2024, the first round of interest rate cuts was cut by 50 basis points. He believes that the market may be re-examining this history and expects the Fed to take bold action again.
The rate cut has increased, and the market has hotly discussed policy prospects
Investors and analysts have different opinions on the more aggressive rate cuts the Federal Reserve may adopt.
Siebert Financial's chief investment officer Mark Malek optimistically said that if the Fed really cut interest rates by 50 basis points, it will inject a shot in the stock market, especially the boosting effect on large growth stocks will be particularly obvious. He believes that this significant interest rate cut will open up "risk appetite" for investors and stimulate market vitality.
However, Slawomir Soroczynski, head of fixed income at CrownAgents Investment Management, warned that a 50 basis point cut could lead to severe volatility in the bond market, especially short bets at the front end of the U.S. Treasury curve could face "surrender", further exacerbating market uncertainty.
Market reaction and future outlook
Double game between stock market and bond market
The weak employment data has xmaccount.complicated market sentiment. On the one hand, the rising expectations of interest rate cuts provide potential support for the stock market, especially technology and growth stocks that may benefit from the low interest rate environment. On the other hand, concerns about the slowdown may weaken investor confidence and lead to increased market volatility.
The dollar fell sharply against major currencies last Friday, setting a new low in the past six weeks, with both the two-year and 10-year Treasury bond yields falling to their lowest since April, and spot gold hit an all-time high, approaching the $3,600 mark.
JimBaird pointed out that the market's interpretation of employment data will determine the short-term trend:Is it focusing on the positive effects of interest rate cuts or concerns about further economic declines, which will directly affect the performance of the stock market.
The Fed's policy path has attracted much attention
The Fed's next move will undoubtedly become the focus of market attention. If the Fed chooses a larger rate cut, it may be seen as a tough response to economic weakness, but it may also raise greater concerns about the economic outlook.
JackAblin stressed that Powell's emphasis on full employment may push the Federal Reserve to adopt a looser policy that exceeds expectations, which will have a profound impact on the monetary policy path in 2025. The market currently expects that the Fed's interest rate cut in 2025 may exceed previous expectations, injecting more liquidity into the economy.
Summary: The crossroads between economic signals and policy choices
The unexpected weakness of the U.S. non-farm employment data in August not only reveals the reality of the economic slowdown, but also brings new variables to the Federal Reserve's monetary policy. While expecting more aggressive rate cuts, investors are also paying close attention to further changes in economic data. How will the Fed's next move affect the stock market, bond market and even global financial markets? Is it a shot in the arm to stimulate economic growth or a wake-up call for economic weakness? The answer may be revealed at the Federal Reserve meeting on September 16-17. In any case, this employment report has ignited a new round of heated discussions in the market. The uncertainty and opportunities in the future coexist, which deserves close attention from every investor.
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