US Non-Farm Payrolls data in focus as employment slowdown raises stakes for Fed
Is the Fed ahead or behind the curve?
The August non-farm payrolls report, due on 5 September, will be another critical gauge of the health of the US labour market and its implications for monetary policy. After a string of softer figures, investors are bracing for signs that the jobs engine is losing momentum.
The US labour market shows signs of slowing down
The July employment figures delivered a surprise slowdown, with job gains weaker than expected and revisions pointing to average growth of just 35,000 over the past three months. This downshift has heightened concerns that the labour market, a pillar of US economic resilience, is now softening more quickly than anticipated.
Against this backdrop, Fed Chair Jerome Powell used his Jackson Hole speech to stress that the balance of risks has shifted towards weaker employment conditions. That message underlined the likelihood of interest rate cuts beginning in September.
Economists forecast weak jobs growth, higher unemployment rate
Economists forecast the August report will show just 75,000 jobs created, with the unemployment rate ticking higher to 4.3%. While that still leaves the rate close to the Fed’s estimates of “full employment,” the detail beneath the headline figures could prove decisive.
The participation rate, highlighted by Powell, has been artificially lowered by past immigration and policy shifts, keeping the unemployment rate lower than it would otherwise be. Without those effects, unemployment would likely be running in the high 4s rather than the mid-4% range.
Markets position for a September Fed cut, focus on rate path
Markets are currently pricing in around a 90% chance of a September rate cut, according to the CME Group’s Fed Watch tool. Another weak payrolls report could push traders to consider the possibility of a larger 50 basis point move, especially if the participation rate remains depressed and job creation disappoints.
The broader question is whether the Fed is moving ahead of the slowdown or lagging behind it. If investors believe the central bank can ease policy gradually while managing a controlled cooling in the labour market, confidence in a “soft landing” will persist. But signs of a faster deterioration could fuel concerns that the Fed is behind the curve, intensifying calls for more aggressive easing and raising fears about growth momentum.
USD/JPY remains rangebound: will NFPs be the catalyst?
While an upside or downside surprise will ripple throughout financial markets, one of the biggest movers would likely be the rate-sensitive USD/JPY. The pair has been range-bound recently, driven by changing US rate expectations, and politics and fiscal policy in Japan.
A weaker than expected Non-Farm Payrolls print could increase the odds of Fed rate cuts, lower Treasury yields and narrow spreads between US Dollar and Yen denominated assets, weighing on the pair. The opposite could occur if the data comes in stronger than expected.
From a technical perspective, dip buyers have emerged for the USD/JPY below the 147 handle, with the 50 day moving average also acting as support. Meanwhile, on the upside, 149 looms key short-term resistance.
(Source: Trading View)
(Past performance is not a reliable indicator of future results)