Source: Wall Street See

Due to the September non-farm data far exceeding expectations, releasing more signals of an economic 'soft landing', the market's expectation of interest rate cuts within the year has significantly converged.

Data released overnight showed that the US non-farm employment population increased by 0.254 million, well above expectations, with the unemployment rate dropping to 4.1% for the first time in nearly a year, also lower than expected.

After the data was released, traders canceled their bets on a 50 basis point rate cut in November, with expectations for the Fed's future four meeting rate cuts to be less than 100 basis points; Bank of America and JPMorgan also revised down their expectations for the Fed's November rate cut from 50 basis points to 25 basis points.

Is the interest rate cut within the year over?

Several analysts have stated that due to the strong September non-farm data, the Fed may pause the rate cut in November.

Chief Investment Officer Glen Smith of GDS Wealth Management stated:

The employment report on Friday was stronger than expected, allowing the Federal Reserve to flexibly choose to cut interest rates by 25 basis points at the November 7 meeting, or to pause rate cuts in November and reconsider in December.

Wall Street veteran Ed Yardeni stated that the Federal Reserve's monetary easing policy for the year may have already ended, as Friday's strong nonfarm payroll report highlighted the economy's resilience.

Yardeni believes that the market's aggressive rate cut pricing has accumulated risks, so the Federal Reserve needs to be more cautious in this decision.

The risk lies in the fact that additional loose policies will fuel investors' excitement, laying the groundwork for painful market events. Yardeni stated:

"Any further rate cuts will increase the likelihood of a 1990s-style stock market crash."

In Yardeni's view, the 50 basis point rate cut in September was also 'unnecessary':

"Given the strong economy and the S&P index hovering near record levels in September, the Federal Reserve's decision to cut rates by 50 basis points – a move usually reserved for dealing with economic recessions or market crashes – was unnecessary."

Be cautious of the inflation risks behind wage growth.

It is worth noting that the wage growth in this non-farm report is also an important indicator to pay attention to.

The report shows that the average hourly wage in September increased by 4% year-on-year, the highest since May, exceeding the expected 3.8%; the average hourly wage increased by 0.4% month-on-month in September, expected growth of 0.3%, unchanged from the previous value.

Former Federal Reserve Board Governor Randy Kroszner pointed out that if wage growth does not decline and productivity growth is not strong enough, the Fed may need to take more aggressive measures to control inflation.

Kroszner explained that high wage growth may lead to an increase in consumer prices, thereby pushing up inflation. Even if the Fed does not control wage growth through rate hikes or other monetary policy tools, it still needs to take stricter measures to curb inflation, which may have a negative impact on the job market.

October non-farm data may be a determining factor.

Ahead of the Federal Reserve's next meeting on November 7, a wealth of data on employment and inflation will determine the Fed's policy trajectory.

Ian Lyngen, the U.S. interest rate strategy director of BMO Capital Markets, pointed out that if the October non-farm employment report is relatively strong and inflation is still proven to be sticky, the Fed may temporarily pause rate cuts.

In a report to clients, he wrote:

The latest employment data suggests that the Federal Reserve may be reconsidering cutting interest rates in November... It's worth briefly considering what the Fed needs next month in order to pause rate hikes.

Editor / jayden