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Is the Fed expected to cut interest rates?

2024-05-09

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After the U.S. Bureau of Labor released an unexpectedly “upbeat” April non-farm payrolls report earlier this month, the Employment Trend Index (ETI) released by the Conference Board this week added fuel to the fire on the prospect of the Federal Reserve cutting interest rates.

As the leading index continued to decline in April, economists believe this indicates that U.S. job growth may gradually stall in a few months. This is obviously good news for the Fed. As U.S. consumption cools and stagnates, and employment growth continues to boom, expectations for the Federal Reserve to cut interest rates this year have been delayed again and again. If U.S. job growth momentum can cool, the Fed will be more likely to cut interest rates sooner rather than later.

Will U.S. job growth stagnate?

Data released by The Conference Board showed that the Employment Trends Index (ETI) fell to 111.25 in April from 112.16 in March. The Employment Trends Index is a leading composite employment index. When the index rises, it indicates that U.S. employment is likely to increase, and vice versa.

Will Baltrus, deputy economist at The Conference Board, said:

"The ETI fell in April, suggesting job growth may stall in the second half of 2024. The ETI has been on a downward trajectory since peaking in March 2022, and this month marks a continuation of that trend. However, the index "Still historically high and above pre-pandemic levels, this suggests that overall employment losses are less likely than employment growth to slow."

On May 3, local time, the U.S. Bureau of Labor Statistics released the latest data showing that 175,000 new non-farm jobs were added in April, far lower than the expected value of 240,000. At the same time, the U.S. unemployment rate rose 0.1 percentage points to 3.9% in April, slightly higher than the expected value of 3.8%.

Batterus believes:

“April non-farm data shows that although the number of U.S. jobs has increased for the 39th consecutive month, compared with recent months, the overall number of new jobs in the U.S. has declined, and the employment growth in all sectors has narrowed. This is all "It shows that the U.S. labor market is starting to show signs of cooling after a period of very strong growth in the post-epidemic period."

There is a labor shortage and hoarding situation in the United States

Although Bartrus expects the U.S. job market to cool, he also mentioned that it is unlikely that there will be significant unemployment in the United States in the coming months as U.S. employers still face labor shortages. He also noted that the proportion of companies currently unable to fill job openings, a component of the Conference Board's Job Opportunity Index, rose to 40% in April, which is still high compared with pre-pandemic levels.

Bartruss also believes that there may be a widespread "labor hoarding" phenomenon in the United States, which can also explain why the U.S. unemployment rate has continued to swing within a narrow range between 3.7% and 3.9% in recent months. Hoarding labor means that during an economic downturn, companies choose to retain existing employees, that is, not lay off employees, considering the high cost of hiring and training new workers in the future.

He wrote in the report: "Some companies are experiencing labor shortages, while many other companies are neither hiring nor laying off employees. This is called 'labor hoarding'. The situation of labor shortages and hoarding will keep the U.S. unemployment rate at "Stick wages, coupled with rising interest rates, are keeping costs low while wages remain stable. These factors may influence employers' decisions to hire more workers."

Bartrous believes: “The slowdown in consumer demand for goods and services in the future will be the main driver of future economic growth slowdown and rising unemployment.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Is the Fed expected to cut interest rates?

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