Conference Presentation, Earnings Call
Global Rates & FX Views: NFP: what it means for US rates & USD
- U.S. labor market is projected to remain balanced and stable with a flat to falling U-rate over the coming months, potentially offset by a negative labor supply shock from recent immigration policy changes affecting TPS workers.
- Wage growth is expected to support consumption without driving immediate inflation, though monitoring the unemployment rate remains critical to distinguishing between supply and demand shocks.
- The September FOMC decision is anticipated to depend on August CPI and PPI figures translating into core PCE, with a greater than 50% probability of a rate hike if core PCE reaches 0.24% or above.
- Failure to hike if the market prices in a rate increase probability exceeding a coin flip could severely impact Federal Reserve credibility, while market expectations for the destination of Fed policy are expected to show larger moves in Q1 2027.
- Market consensus currently forecasts at least 50 basis points of rate hikes through the first quarter of next year, with a potential negative feedback loop arising if pricing shifts toward a September hold.
- Treasury operations are expected to shift toward larger issuance of bills to fund buybacks, marking a departure from the regular and predictable issuance patterns observed since the mid-80s.
- The U.S. dollar is forecast to depreciate in the coming weeks regardless of whether the Fed resists hiking for cyclical reasons or due to structural factors, with a faster and more significant decline predicted if the latter occurs.