Source: Jin10 Data

The US non-farm payroll report released on Friday showed that employment growth was far beyond expectations, leading the market to believe that the earliest the Federal Reserve would start cutting interest rates would be in September. However, at the same time, the unemployment rate rose from 3.9% in April to 4.0%, breaking the record of 27 consecutive months below 4%, which increased the uncertainty of rate cuts.

Analyst Matthew Boesler said that the employment report presented two different narratives again: all indicators from the company survey (employment and wages) were better than expected, while data from the household survey (unemployment and labor participation rate) was worse than expected.

Today's strong non-farm report was released after recent reports suggested unexpected economic weakness. Recent retail sales, overall consumer spending, construction and industrial production data have all been below economists' expectations. However, most economists remain optimistic about the near-term outlook, believing that the economy is normalizing after the surprising overheating period last year, rather than deteriorating in a more worrying way.

Despite a softer job market in recent months, its overall solid performance has allowed the Federal Reserve to remain patient in deciding when to start cutting interest rates. State Street analyst Marvin Loh believes that any concerns about a rate cut in July have now been quickly dispelled, as the job market is still running at full speed, giving the Federal Reserve time to evaluate whether the weakness seen in other data will lead to a slowdown in summer job growth.

Seema Shah, Chief Global Strategist of Principal Asset Management, also believes that this report weakens the message of recent economic data suggesting that the US economy is cooling and shows that the US economy is far from the recession area. The key is that not only did employment growth explode again, but wage growth also unexpectedly rose, both of which are contrary to the direction needed for the Federal Reserve to start easing policies. However, the strategist said that the Federal Reserve is still expected to cut interest rates in September, but if data like today appears again, it is unlikely to cut interest rates.

Brian Nick, Senior Investment Strategist at Macro Institute, said that today's data would not cause the Federal Reserve to change its existing path of keeping interest rates high for longer to put pressure on inflation, but they will not like the unemployment rate to rise to 4%. Chief Economist Brian Jacobsen of Annex Wealth Management said that the strong non-farm data means that the Federal Reserve can still focus directly on inflation without worrying too much about economic growth.

Reducing inflation is still the Federal Reserve's primary concern, and the market is still concerned that inflation will return. After all, this has happened in the eurozone——although the European Central Bank reduced interest rates yesterday. Quincy Krosby, Chief Global Strategist at LPL Financial, said that the Federal Reserve may regard today's data as an obstacle to interest rate cuts in September, as a strong labor market will bring stronger consumers who can continue to consume and intensify inflation.

Peter Cardillo, Chief Market Economist of Spartan Capital Securities, said that the part that the Federal Reserve is most interested in is the average hourly wage growth rate, which rose to an annual rate of 4.1%. He believes that overall, this is a strong report, indicating that there are no signs of collapse in the labor market. This is good for the economy and corporate profits, but it is a negative factor for the prospect of a rate cut as early as September. He believes that today's non-farm data may eliminate the hope of a rate cut in September and postpone the time of interest rate cuts to December.

Given that the job market is still strong overall, CPI data released next week will be the focus of the market's attention. Market participants are still trying to predict the timing of the Federal Reserve's adjustment of interest rates, and everyone's attention will turn to inflation data. Analysts said that today's report did not increase the urgency of the Federal Reserve's rate cut, and next week's CPI may bring different news.

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