BOCHK: Employment market data will become an important factor affecting the pace of future rate cuts by the Federal Reserve
Bank of China Hong Kong pointed out that future employment market data will become an important factor affecting the pace of the Fed's interest rate cuts. The Fed kept the federal funds rate unchanged, but changed its focus to pay more attention to the employment market situation. The change in the wording of this statement reflects the fact that current U.S. inflation is gradually approaching the target level, and the Fed is more concerned about the employment market situation. If the job market weakens, it will affect consumer spending and corporate profits, potentially prompting the Fed to accelerate its rate cuts. The focus in the future will be on the global central bank annual meetings and the rate dot plot update in September. It is expected that the median interest rate in September will be lower than the June estimate
According to the Wise Finance app, as expected, the Federal Reserve maintained the federal funds rate range at 5.25% to 5.5%. Zhang Shiqi, head of the Wealth Strategy and Analysis Department of Personal Digital Financial Products at Bank of China Hong Kong (02388), believes that the market had already anticipated that the interest rate would remain unchanged this time. Therefore, the focus of the meeting was on Federal Reserve Chairman Powell hinting to the market that a rate cut could occur as early as September, as well as adjustments to the wording of the interest rate statement. Zhang Shiqi believes that future employment market data will be an important factor affecting the pace of future rate cuts.
The post-meeting statement shows that the Federal Open Market Committee (FOMC) believes that progress has been made in achieving the 2% inflation target. At the same time, the risks facing the achievement of employment and inflation targets will continue to trend towards a better balance. Zhang Shiqi believes that the difference in this statement compared to the past is that in the past, the Fed only mentioned concerns about inflation risks, but the latest wording expresses the Fed's concern about its dual mandate, namely the dual risks derived from achieving price stability and maximizing employment. The change in the wording of this statement reflects the Fed's current focus on the employment market situation as inflation gradually moves towards the target level in the United States.
Regarding the description of the employment market, Powell believes that as the labor market cools, the chance of unexpected inflation increases will decrease, while the downside risks to the labor market "are real." Faced with rising unemployment rates, although the authorities believe that the current level remains relatively low, they also emphasize that they do not want to see a significant cooling of the labor market. Zhang Shiqi believes that future employment market data will be an important factor affecting the pace of future rate cuts, as nearly 70% of U.S. economic growth comes from consumption. In the event of a weakening job market, a decrease in employee income will affect consumer spending, thereby affecting the economy and corporate profits. Therefore, if the employment situation is not ideal, it will prompt the Fed to accelerate the pace of rate cuts.
Future focus will be on two important schedules: first, the global central bank annual meeting at the end of August, which is expected to further strengthen the market's view that the Fed will begin a rate cut cycle in September. Second, the interest rate dot plot will be updated at the September policy meeting. Zhang Shiqi expects that the median year-end interest rate shown in the September dot plot will be lower than the 5.1% estimated in June. According to the latest interest rate futures contracts, the market expects two rate cuts this year, and recent asset performance has already fully reflected expectations of rate cuts starting in September, so the above schedules are expected to bring volatility to asset prices