Fed appears hawkish, but data paint a different picture At its latest gathering, the FOMC appeared more hawkish than expected, revising its interest rate projections from three quarter-point reductions by the end of the year to just one.
Investors expect two rate cuts, even though Fed signals one. Recent data corroborates investors’ take. Nonfarm payrolls waited for more confirmation. The report comes out on Friday, at 12:30 GMT. That said, the softer-than-expected CPI numbers a few hours ahead of the decision did not convince market participants about policymakers’ intentions. The weaker than expected retail sales numbers for May and the slowdown in the core PCE price index for the same month corroborated that view.
A potential slowdown in job gains is underscored by the increase in initial jobless claims during the month, which is indirectly supporting the notion of a pay slowdown, as having more available workers to choose from is allowing firms to offer less. This could result in lower inflation in the months to come and thereby add more credence to investors’ view that interest rates in the US may need to be cut twice this year.
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