The data requested by the Federal Reserve has arrived! Will there be a 50 basis point rate cut in September?

US job growth slowed more than expected in July, adding only 114,000 jobs, pushing the unemployment rate up to 4.3%, which could exacerbate concerns about a deteriorating job market and potentially lead the economy into a recession. During the survey period, Hurricane Beryl destroyed power in Texas and devastated parts of Louisiana, which may be one of the reasons for the lower-than-expected increase in employment numbers.

Average hourly earnings, after growing by 0.3% in June, increased by 0.2% last month. Over the 12 months ending in July, wages grew by 3.6%. This is the smallest year-over-year increase since May 2021, compared to 3.8% in June. The employment report sets the stage for the Fed to cut rates in September. The unemployment rate has risen for the fourth consecutive month, which could heighten concerns about the sustainability of economic expansion, triggering a highly accurate recession warning.

The concept of the "Sahm Rule" was commented on by its creator, Claudia Sahm, a former Fed economist, regarding the US unemployment rate in July, saying that "even if the unemployment rate exceeds the critical threshold of the Sahm Rule, a recession is not imminent." The so-called Sahm Rule, named after Claudia Sahm, suggests that if the unemployment rate (based on a three-month moving average) rises by half a percentage point from its low point last year, a recession has almost always already begun. Since 1970, every US economic recession has been preceded by a rise in the unemployment rate. Since 1959, it has only made two false alarms; in the two false alarms in 1959 and 1969, it was triggered a few months before the start of the economic recession, just prematurely.

In addition, US non-farm payroll numbers for May and June were revised downward by 29,000. The US Bureau of Labor Statistics stated that non-farm payroll additions in May were revised from 218,000 to 216,000; and in June, non-farm payroll additions were revised from 206,000 to 179,000. After the revisions, the total number of new jobs in May and June was 29,000 lower than previously reported.

Financial website Zerohedge stated that in the past 6 jobs reports, 5 were revised downward. In fact, out of the past 14 jobs reports, 10 have been revised downward. Not only has the unemployment rate hit a new high in 3 years, but revisions to job reports have become the new norm. So far, hundreds of thousands of jobs have been revised downward as early as 2024.

Institutional analysis suggests that the market discussion focus is quietly shifting, with discussions about the Fed likely to quickly adjust to the current situation. Regardless of the previous uncertainty in the market about whether the Fed would cut rates, the topic is now likely to shift to how many times the Fed will cut rates. **The money market has increased its bets on a Fed rate cut, with increased bets on a 50 basis point cut in September and expectations of over 100 basis points of cuts by the end of 2024. This is the most dovish trader expectation in this cycle **

Melissa Brown, Managing Director of the Application Research Department at Simcorp, stated that a 50 basis point rate cut is possible, but considering the cautious attitude of the Federal Reserve, it is unlikely. This will depend on the data in the coming weeks. With hourly wages slightly lower, the next inflation report will be crucial as it reflects the comparison between overall inflation and income growth.

The current U.S. bond yields still reflect this shift in outlook. After today's data showed that the U.S. labor market cooled faster than expected, bond yields plummeted significantly as traders weighed the prospect of an economic hard landing.

Catherine Judge, an economist at CIBC Capital Markets, stated that it makes sense to expect three rate cuts by the end of this year. This report clearly aligns with the market's expectation of a rate cut in September by the Federal Reserve and increases the possibility of the economy needing three rate cuts this year instead of the current expectation of two rate cuts. However, more important indicators, including inflation data, still exist before the Federal Reserve makes a rate cut decision.

Jeffrey Rosenberg, a portfolio manager at BlackRock, expressed disappointment in the overall weak performance of the non-farm payroll report. The question now is whether the 50 basis point rate cut in September is already priced into the market, and whether this means the Federal Reserve needs to lower rates by 50 basis points. He pointed out that the most interesting thing at the moment is the Russell 2000 index leading the market lower. Whether this is an overreaction or not, the market is clearly reacting in this way.

Will the U.S. unemployment rate continue to rise, and was the rate cut in September by the Federal Reserve too late? Vasif Latif, President and Chief Investment Officer of Sarmaya Partners, stated that the market is now realizing that the economy is indeed slowing down. The unemployment rate is an autocorrelated number, so once it starts moving in a certain direction, it usually continues the trend. The Federal Reserve relies on data, and now that the data is out, they may do what they need to do in September. However, September seems a bit far off for the market, which is currently in a state of panic. He mentioned that in this environment, with factors such as economic slowdown and investors turning to quality assets, bond prices are expected to rise