- Data on Thursday revealed that US employment claims increased more than expected.
- Data last Friday showed slower-than-expected job growth in July.
- The latest market development came after Trump picked Stephen Miran to fill the vacancy at the Fed.
Interest futures held steady on Friday as Treasury yields remained subdued after downbeat US employment figures. Meanwhile, market participants were speculating about future rate cuts after Trump’s pick to fill the vacancy in the Fed.
US continuing claims (US Labor Department)
Data on Thursday revealed that US employment claims increased more than expected. Claims rose to 226,000, compared to the forecast of 221,000. Moreover, continuing claims surged. The report revealed further weakness in the labor market, leading to a decline in the dollar and Treasury yields.
Moreover, it came after confirmation that the labor market has slowed down significantly. Data last Friday showed slower-than-expected job growth in July. However, the biggest surprise was a massive downward revision of the previous two readings. It showed that the labor market had been much weaker than previously thought. As a result, it added pressure on the Fed to cut interest rates.
Before the data, policymakers were comfortable delaying cuts and watching the impact of tariffs on inflation. However, things changed that Friday. Rate cut bets surged with market participants almost fully pricing a cut in September. Consequently, the dollar and Treasury yields collapsed while interest futures rallied.
This momentum has remained mostly in place this week. The latest development came after Trump picked Stephen Miran to fill the vacancy at the Fed. This follows the sudden resignation of a governor last week. Many believe Trump’s pick will be more dovish in future meetings.
Moreover, some experts are predicting a more political Fed in the future. Powell’s term will end early next year, and the US president will get a good chance to pick more dovish candidates. Therefore, there might be more rate cuts in the central bank’s future.
Next week, all focus will be on the US inflation numbers. Last month, inflation came in hotter than expected and led to a decline in Fed rate cut expectations. Another hot reading would cause a bit of uncertainty about the outlook for rate cuts. The Fed has to balance growth and inflation. Therefore, upbeat data might ease rate cut bets. On the other hand, downbeat figures would solidify bets for a rate cut in September.
