On the early morning of August 1st Beijing time, the Federal Reserve decided to maintain the target range of the federal funds rate at 5.25% -5.50%, marking the eighth consecutive time since September last year that the Fed has kept interest rates unchanged.
Federal Reserve Chairman Powell released an important signal at a subsequent press conference, suggesting that the Fed may start cutting interest rates in September this year. This dovish statement has triggered a strong reaction in the market, and investors have adjusted their expectations for the future policy path of the Federal Reserve.
Subsequently, on the evening of August 3rd Beijing time, the unexpectedly "explosive" employment data further raised market expectations for the Federal Reserve to cut interest rates. The data released by the US Department of Labor on that day showed that the non farm payroll in the United States increased by 114000 people in July, the lowest since December 2020, far below the expected 175000 people; The unemployment rate in July increased by 0.2 percentage points from the previous month to 4.3%, setting a record high since October 2021 and exceeding expectations by 4.1%.
It is worth noting that the US unemployment rate has surged by 0.6% from its low point this year, triggering the "Sam's rule" of predicting a recession based on unemployment rates - if the unemployment rate (based on a three-month moving average) rises by 0.5 percentage points from last year's low, then an economic recession has begun. Analysts point out that the indicator has had a prediction accuracy of 100% since 1970.
The July employment data in the United States shocked the market, causing panic to spread rapidly. Traders began betting on the possibility of a 50 basis point rate cut in September and predicted that the rate cut this year would exceed 110 basis points.
As of noon on August 5th, the Federal Reserve Rate Watch tool showed that traders expected a 100% probability of the Fed cutting interest rates in September; The probability of a 50 basis point interest rate cut is as high as 74%. This expectation has also been recognized by some major Wall Street banks, including JPMorgan Chase and Citigroup.
Data source: Yingwei Caiqing