OPINION
Market Rating Before FOMC MeetingJan 31
FED Leaves Door Open for the Next Rate Hike: All Eyes on Nonfarm Payrolls
After the US Federal Reserve (FED) pointed out at its meeting last Wednesday that the size of the next rate hike will depend on the data, eyes have been turned to the labor statistics to be announced today.
In the report to be published by the Bureau of Labor Statistics (BoLS) of the US Department of Labor for October, market expectations for nonfarm payrolls (NFP): 200 thousand increase.
Headline inflation in the world's largest economy is on its way to decline from its 41-year peak. In September, the consumer price index (CPI) increased by 0.4 percent compared to the previous month and became 8.2 percent on an annual basis. However, the core CPI, which stood at 6.6 percent, reveals that the disinflation process has not yet satisfied the members of the Federal Open Market Committee (FOMC).
At this point, the indicators of the labor market are critical. In other words, the tightness of the labor market alleviates the consequences of the Fed's rate hike cycle. However, high-frequency data indicate that the US economy will enter a stronger recession in the last quarter compared to the second quarter.
In other words, it is very important that employment losses do not exceed reasonable levels in order for the FED to achieve a soft landing while controlling inflation, without creating a deeper recession. As a matter of fact, after the meeting last Wednesday, FED Chairman Jerome Powell stated that he believed the labor market could soften without mass layoffs, and that price stability was needed for the growth in the employment market to continue.
Emphasizing that they will act according to the meeting and to the incoming macroeconomic data while making their decisions, Powell stated that the slowdown in the rate of interest hike may be in the December or February meeting, but a clear decision has not been made yet.
To sum it up, the expectation of 200,000 increases from today's NFP report will be an important element of policy tightening for the FED's December meeting. If the NFP exceeds the market forecasts, it could strengthen the expectations towards the 5th 75 basis point rate hike, giving the FED some more relief for its next meeting. This may cause the dollar to increase its pressure on major country currencies and assets with high-risk sensitivity.
On the other hand, an NFP below the expectations of 200 thousand may create a prediction that the FED will now slow down in policy tightening by easing soft landing scenarios, as well as creating a reaction to the stock and crypto money market.
In the report to be published by the Bureau of Labor Statistics (BoLS) of the US Department of Labor for October, market expectations for nonfarm payrolls (NFP): 200 thousand increase.
Headline inflation in the world's largest economy is on its way to decline from its 41-year peak. In September, the consumer price index (CPI) increased by 0.4 percent compared to the previous month and became 8.2 percent on an annual basis. However, the core CPI, which stood at 6.6 percent, reveals that the disinflation process has not yet satisfied the members of the Federal Open Market Committee (FOMC).
At this point, the indicators of the labor market are critical. In other words, the tightness of the labor market alleviates the consequences of the Fed's rate hike cycle. However, high-frequency data indicate that the US economy will enter a stronger recession in the last quarter compared to the second quarter.
In other words, it is very important that employment losses do not exceed reasonable levels in order for the FED to achieve a soft landing while controlling inflation, without creating a deeper recession. As a matter of fact, after the meeting last Wednesday, FED Chairman Jerome Powell stated that he believed the labor market could soften without mass layoffs, and that price stability was needed for the growth in the employment market to continue.
Emphasizing that they will act according to the meeting and to the incoming macroeconomic data while making their decisions, Powell stated that the slowdown in the rate of interest hike may be in the December or February meeting, but a clear decision has not been made yet.
To sum it up, the expectation of 200,000 increases from today's NFP report will be an important element of policy tightening for the FED's December meeting. If the NFP exceeds the market forecasts, it could strengthen the expectations towards the 5th 75 basis point rate hike, giving the FED some more relief for its next meeting. This may cause the dollar to increase its pressure on major country currencies and assets with high-risk sensitivity.
On the other hand, an NFP below the expectations of 200 thousand may create a prediction that the FED will now slow down in policy tightening by easing soft landing scenarios, as well as creating a reaction to the stock and crypto money market.
