Senior Fed Official Temporarily Does Not Buy into Bright Non-Farm Payrolls: Overall Risk Balance Slightly Leans Towards Labor Market Facing Headwinds

After the release of the impressive non-farm payroll data in the United States last Friday, Federal Reserve officials have been giving speeches one after another. However, overall, they are cautious about the labor market and more optimistic about the cooling of inflation.

According to the report released by the U.S. Bureau of Labor Statistics, the U.S. added 254,000 jobs in September, significantly exceeding expectations and marking the largest increase since March this year. The unemployment rate unexpectedly dropped to 4.1%, and both year-on-year and month-on-month wage growth exceeded expectations, alleviating concerns about the deterioration of the U.S. labor market.

Minneapolis Fed President Kashkari stated on Monday that the overall risk balance slightly leans towards headwinds in the labor market, indicating that the unemployment rate may rise, while progress continues to be made in combating inflation.

Kashkari believes that the U.S. labor market remains strong, and the Fed hopes to maintain this momentum. The rate cuts are also aimed at sustaining the labor market's momentum.

Kashkari also mentioned that he has not seen signs of reigniting inflation. The decline in new rental inflation gives him confidence that housing inflation in the next 12-24 months will decrease. The Fed is very confident in the inflation returning to the 2% target.

In general, Kashkari pointed out that the U.S. economy is resilient.

Kashkari revealed that in the Summary of Economic Projections (SEP) released in September, he expects the neutral interest rate to be around 3%. However, he admitted that the level of the neutral interest rate faces significant uncertainty.

Kashkari's cautious stance on the U.S. labor market is similar to the previous remarks by Chicago Fed President Goolsbee. He stated that the September non-farm payroll data was very impressive but warned against relying too much on monthly data. He also mentioned that this will not change the trend of interest rate cuts in the next 12 to 18 months. Goolsbee added that inflation may be below the Fed's 2% target, highlighting the existence of this risk.

The statements of the Fed officials have deviated somewhat from the market. Following the release of the significantly better-than-expected non-farm payroll data, discussions on "no more rate cuts this year" have emerged on Wall Street. Some industry insiders also point out that U.S. inflation has been overlooked and that inflation is still not dead