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US Fed could cut 50bps after latest job numbers

Journalist: John Choong (Head of Markets and Research), Newspage

ended 06. September 2024

The latest US non-farm payrolls number came in worse than expected. A mere 142k jobs were created in August, below the median consensus of 160k, although above estimates of 120k. However, the unemployment rate remained steady at 4.2%.

Making matters worse, both June and July’s numbers were also revised downwards. June saw its numbers decrease to 118k from 179k, while July’s fell to 89k from 114k. Meanwhile, average hourly earnings on a year-on-year basis also came in above consensus of 3.7%, at 3.8%, leaving the Federal Reserve in a tight spot as higher wage growth could leave inflation stickier than expected.

Even so, the odds of a 50bps rate cut has now jumped to 47% from 43% yesterday. Equity and bond markets have had a rather mixed reaction, however. The S&P opens roughtly flat at 0.2%, while the 10Y yield has remained unmoved at 3.73%. Both GBP/USD and gold have also returned to their pre-jobs report levels of $1.3181 and $2,540, respetively, having spiked earlier.

Newspage asked economists, analysts, and experts for the views on the potential of a US recession, what this means for gold, and what it could spell for the US dollar.

3 responses from the Newspage community

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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit Investments
The US labour market is showing signs of fatigue. The weaker-than-anticipated job growth paired with the downward revisions to last month's numbers adds weight to the argument that the US economy may be edging closer to a recession. With the labour market showing signs of cooling. this could bolster the case for a more significant Fed rate cut in September, as markets begin to price in a shift towards a 50bps cut.

For gold, this could be a catalyst for higher prices, with the weaker employment figures prompting investors to seek refuge in the precious metal, and the resulting lower real yields could further boost gold's appeal.

The GBP/USD pair may see significant movement, with the softer dollar providing an opportunity for sterling to gain ground. While it's premature to sound the alarm based on a single data point, the softening labour market could be an early indicator of broader economic challenges ahead.
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John Choong
Head of Equities and Markets at Investors Edge
August's job numbers might not spell recession, but with the NFP’s habit of downward revisions in recent months, today’s 142k could shrink faster than a wool sweater in hot water when the September data is released next month. A 50bps rate hike is now squarely on the radar, as economic slowdowns have a nasty habit of snowballing very quickly.

Meanwhile, gold bugs are grinning as the greenback loses its lustre, while the pound might fancy a comeback tour to hit $1.33 or higher in the coming days.
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Riz Malik
Independent Financial Adviser at R3 Wealth
The US economy appears to be more resilient than expected given the recent concerns that it is heading for a nasty recession. However, the markets have increased their expectations of a "jumbo" 50bps cut which will have an impact on our shores should that happen.