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After Friday’s employment report showed a few signs of softening, fixed-income investors reacted quickly to price in a rate cut at the September Federal Reserve (Fed) meeting.1 The most notable soft spot in the June employment report was an uptick in the unemployment rate to 4.1%,2 the highest level since November 2021.3 In addition, a steep decline in temporary help service employment during June has historically been a precursor to slowing job growth ahead.4 Treasury rates moved lower, and the yield curve steepened on Friday.5
The renewed optimism for rate cuts will be put to the test with fresh inflation data out later in the week. The Consumer Price Index (CPI) report out Thursday and Friday’s Producer Price Index (PPI) release are expected to show an overall increase of 0.1% and a core inflation reading of 0.2%, which would be welcome news for the Fed and investors.6 Fed Chair Powell’s semiannual testimony to Congress on Tuesday and Wednesday should also shed more light on how much more proof that inflation is moderating will be necessary for rate cuts to begin.7
Sources:
1,2,5CNBC – U.S. economy added 206,000 jobs in June, unemployment rate rises to 4.1%; 7/5/24
3U.S. Bureau of Labor Statistics – Unemployment Rate; as of June 2024
4MarketWatch – Temporary help services, often a key indicator of job growth, stumbles in June; 7/5/24
6,7MarketWatch – U.S. Economic Calendar; as of 7/8/24
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