Will NFP Support Less Hawkish Fed?

The NFP data is usually awaited by the financial markets and investors with eagerness because of it is likely that Friday’s print would bring about significant and weighty change on the Federal Reserve’s upcoming policy decision.
As the US Bureau of Labour Statistics prepares to release the August jobs data on Friday. After a weaker-than-expected 187,000 increase in nonfarm payrolls in July, expectations are for a 170,000 increase in August.

The lead-up to the NFP data has influenced markets to take a more dovish stance afterward. US job openings (JOLTs) missed projections and ADP statistics showed a weaker labour market as the week began. A worse-than-expected GDP figure and CB consumer confidence added to the kind of gloom surrounding the US economy as well as recession-linked concerns.

Initial unemployment claims exceeded forecasts and inflationary pressures persisted despite being expected, so the Federal Reserve’s preferred inflation gauge, the core PCE price index, shifted momentum away from a more accommodating monetary policy.

With regard to the Jackson Hole Economic Symposium, Federal Reserve Chair Jerome Powell hinted at the prospect of another rate hike if required but did not offer much of a departure from the existing narrative of higher for longer. Due to the US labour market’s resistance to higher interest rates and the increased emphasis on economic statistics in Chair Powell’s speech, Friday’s release of the NFP report could cause a stir.

Money markets currently anticipate the first rate drop to take place in May 2024, a long cry from September 2023 just a few months ago. Because of the erratic nature of the markets, it is important to remember the potential impact of an unexpected NFP. Since markets are biased towards a lower figure, anything noticeably stronger might boost the US dollar and halt recent SPX rise.

Similar to Federal Reserve Chair Powell, Fed’s Bostic associated himself with a more cautious approach, supporting higher interest rates to guarantee that inflation softens to the proper levels, while leaving the door open for more rate hikes. Estimates are at 170k according to the NFP, although many economists and market analysts are expecting a little bit less. expectations for unemployment are still muted, and anything that comes close to expectations won’t indicate a decline in the US labour market.

Average earnings, which have significantly contributed to the inflation rate remaining sticky, will be another important indicator.