- US data revealed slower-than-expected job growth in August and an increase in the US unemployment rate.
- Monthly price pressures in the US accelerated more than expected to 0.4%.
- US unemployment claims increased to 263,000, beating the forecast of 235,000.
Interest futures eased on Friday but were set to end the week higher after a surge in Fed rate cut expectations. Inflation figures on Thursday allowed Treasury yields to recover from their recent collapse, putting pressure on interest futures.
Since last week, market participants have absorbed data showing a rapid slowdown in the US labor market. As a result, Fed rate cut expectations have soared, sending Treasury yields lower and boosting interest futures.
Last Friday, data revealed slower-than-expected job growth in August and an increase in the US unemployment rate. The report quickly shifted the Fed’s outlook to a more dovish one. Market participants started pricing at least three rate cuts before the end of the year.
Meanwhile, this week, the focus was on the consumer inflation report. According to data, monthly price pressures accelerated more than expected to 0.4%. Meanwhile, the annual figure increased by 2.9% as expected. The report was more upbeat than expected and briefly boosted Treasury yields and the dollar. However, it failed to dampen rate cut expectations.
US jobless claims (Source: US Labor Department)
Moreover, a separate report on Thursday revealed that US unemployment claims increased to 263,000, beating the forecast of 235,000. The report intensified worries about the labor market and supported the outlook for at least three rate cuts this year. Additionally, it overshadowed the upbeat inflation report.
“It feels like markets are focused on the softening labor market. That implies a Fed that is going to embark on a rate-cutting cycle,” said Mona Mahajan, head of investment strategy at Edward Jones. “After next week, they’ll be looking to see how both the inflation and labor market play out.”
Nevertheless, inflation will continue to play a significant role in determining future policy moves. Currently, the decline in growth is more alarming and outweighs the spike in inflation. At the same time, policymakers are more convinced that Trump’s tariffs have only slightly impacted price pressures.
The Fed will meet next week, and traders expect policymakers to vote for a rate cut. At the same time, they will watch their comments on the recent slowdown in the labor market to gauge what the future could look like.
