Fed rate-cut expectations rise as US employment data cools

JH Kim

Summary

As US employment indicators weaken, expectations for Fed rate cuts are rising again.
An increase in initial jobless claims, a larger scale of layoffs, and a decline in job openings point to weakening labor demand.
Financial markets are already pricing in the possibility of rate cuts within the year, and a potential shift in the monetary-policy stance is being discussed depending on upcoming employment and inflation data.

According to Walter Bloomberg, a breaking-news account, on the 5th (local time), expectations for interest-rate cuts by the Federal Reserve (Fed) are rising again as a string of US employment indicators shows signs of weakening. The assessment is that signals are strengthening that the labor market is entering a slowing phase.

Recent US labor-market releases showed an increase in initial jobless claims and a larger scale of corporate layoffs. At the same time, job openings declined, suggesting weakening demand for labor.

Markets are interpreting this trend as a gradual cooling of the labor market. Analysts say that if the job market moves out of an overheating phase, the Fed could have a stronger rationale to ease its rate policy.

The Fed has maintained a cautious stance on cutting rates, citing a resilient labor market. However, if employment indicators slow faster than expected, the possibility of a shift in the policy stance is also being raised.

Financial markets are already showing moves that price in the possibility of rate cuts. Some interest-rate futures markets are reflecting a higher probability than before of a cut within the year.

The Fed plans to determine the direction of monetary policy by comprehensively reviewing upcoming employment and inflation data. Attention is focused on whether rate-cut discussions could gather pace if the labor-market slowdown continues.