Tonight, the non-farm payroll will "testify" for the Federal Reserve to pause interest rate cuts?

Zhitong Finance has learned that the U.S. Bureau of Labor Statistics will release the monthly non-farm payroll report on Friday. The December non-farm payroll report is expected to show a healthy increase in new jobs, with the unemployment rate remaining unchanged, indicating that the labor market has once again defied expectations of a more significant slowdown. According to economists' expectations, non-farm payrolls may have increased by 165,000 last month, a decrease from 227,000 in November.

This data will support the Federal Reserve's intention to refocus on inflation. Last year, the Federal Reserve cut interest rates by a full percentage point to prevent a rapid deterioration of the labor market. Following these measures, Fed Chairman Jerome Powell stated that as long as the job market remains stable, officials can take a cautious approach to further rate cuts.

Several Federal Reserve officials confirmed on Thursday that the Fed may keep interest rates at current levels for an extended period, only considering rate cuts again when inflation shows clear signs of cooling.

Boston Fed President Collins stated on Thursday that due to the "considerable uncertainty" facing officials regarding the U.S. economic outlook, the pace of rate adjustments should be slowed down. This view was echoed by Fed Governor Bowman and other regional Fed presidents.

Bowman pointed out that the persistent inflation risks justify a slower pace of rate cuts. Kansas City Fed President George stated that interest rates may be close to a level that neither stimulates nor slows down the economy. Like Collins, George is a voting member this year. Philadelphia Fed President Harker also indicated on Thursday that he is prepared to support further rate cuts in 2025, but the timing will depend on economic conditions.

At the December meeting last year, Fed policymakers cut rates for the third consecutive time, lowering the benchmark rate by 25 basis points, bringing the total rate cut for the year to one percentage point. Many Fed officials stated that it is appropriate to slow the pace of rate cuts, as the inflation rate remains above the 2% target and the labor market is healthy. According to futures pricing, investors generally expect policymakers to keep rates steady at the meeting on January 28-29.

Bank of America economists Shresh Mishra and Aditya Bhave stated in a report previewing data on January 6: "A pause in rate cuts in January is clearly the Fed's baseline scenario. We believe that if the labor market stops gradually cooling, the rate-cutting cycle may come to an end."

While economists' forecasts range from 100,000 to 268,000, if the report aligns with the median estimate, it would mean that the U.S. economy added 2.1 million jobs throughout 2024. This would be lower than the 3 million added in 2023 but still higher than the 2 million created in 2019

However, beneath the surface, the job market has shown some signs of weakness. Monthly hiring tends to be concentrated in a few industries, and the unemployment rate is also rising slightly. Additionally, it is becoming increasingly difficult for the unemployed to find new jobs, as U.S. companies announce that hiring in the U.S. in 2024 will reach the lowest level in nearly a decade.

Bloomberg economists Anna Wong and Estelle Ou said in a report preview on January 9: "The employment data for December may be strong—we acknowledge this is an encouraging sign of improvement in the labor market. Nevertheless, we still cannot confidently conclude that the labor market is heating up again."

Economists have been closely monitoring the unemployment rate, especially after a consecutive rise in the unemployment rate in early 2024 triggered a common recession indicator. Forecasters expect this indicator to reach 4.2% by the end of this year, unchanged from November but higher than the 3.7% at the beginning of the year.

Citigroup economists said in a report on January 6: "The unemployment rate remains the most important aspect of the monthly employment data. We expect the unemployment rate to rise above 4.5% in the coming months, which will lead to significant adjustments in the Federal Reserve's interest rate cuts this year."

The employment report consists of two surveys, one of businesses and the other of households. Friday's report will include an annual revision of the latter, which provides information on statistics such as the unemployment rate and participation rate. Andrew Husby, senior U.S. economist at BNP Paribas, said in a report on January 3: "This process typically results in minimal adjustments to the unemployment rate, and we expect it to remain unchanged this time."

Next month's report will include a benchmark revision of the business survey, as well as new seasonal factors, which often have a greater impact on the overall job market. Preliminary benchmark data released in August indicated that the U.S. may have added 818,000 fewer jobs in the 12 months ending March 2024 than initially reported, and subsequent estimates from the Philadelphia Fed suggest that the trend of job weakness may continue into the second quarter