Will Soft U.S. Jobs Data Finally Put the Brakes on Interest Rates and the Dollar?
Will Soft U.S. Jobs Data Finally Put the Brakes on Interest Rates and the Dollar?
By:Ilya Spivak
Investors are struggling to find direction after reading the minutes from the FOMC meeting
- Markets are finding little to inspire momentum in the December FOMC meeting minutes.
- All eyes are now turning to the U.S. employment data as interest rates remain in focus.
- Bonds may rise as the U.S. dollar declines on softer-than-expected outcomes.
Minutes from December’s Federal Reserve monetary policy meeting underwhelmed financial markets. Wall Street equity averages were mildly buoyed by the apparent absence of a more hawkish tone than was already anticipated, rebounding from session lows but keeping well within intraday ranges. The bellwether S&P 500 is on pace to finish flat.
The response from currencies and interest rates was still more dismissive. The U.S. dollar traded little changed against its major counterparts and Treasury yields marked time across the curve. Gold prices attempted to build a bit of upward momentum, but progress has been contained near last week’s high.
Markets seek direction after FOMC meeting minutes
“Almost all” members of the rate-setting Federal Open Market Committee (FOMC) judged that upside risks to the inflation outlook have increased as disinflation slowed in 2024. Nevertheless, a “vast majority” still saw risks to their employment and price stability objectives as roughly in balance.
“Most” participants in the conclave said that with rates now significantly less restrictive, they should take a careful approach to considering further adjustments. “All” of them saw elevated uncertainty about trade and immigration policy changes, but “many” also noted greater optimism linked to expectations of easing regulations and lower taxes.
As it stands, benchmark Fed Funds futures are pricing in 39 basis points (bps) in rate cuts for 2025 and 16bps for 2026. That amounts to a narrow tilt toward two standard-sized reductions this year and one in next year. That is somewhat more hawkish than central bank officials’ median expectation of 50bps in cuts this year and next.
U.S. employment data is front and center
The spotlight now turns to the closely watched monthly labor market report from the Bureau of Labor Statistics (BLS). It is expected to show the U.S. economy added 154,000 jobs in December. The unemployment rate is expected to remain unchanged at 4.2%, matching the three-month high recorded in November.
Analytics from Citigroup suggest U.S. economic data outcomes have been cooling relative to baseline forecasts since mid-November, this week’s blistering ISM services report notwithstanding. In fact, the employment tracker in that survey and its manufacturing sector counterpart were notably cooler than headline results.
A leading report from Automatic Data Processing (ADP)—the HR management giant—was similarly underwhelming. It showed private payrolls added 122,000 jobs last month, missing estimates calling for 140,000. Treasury bonds may rise as yields and the U.S. dollar retreat if all this foreshadows soggier official labor market figures than expected.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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