Fed policymakers are almost certain to modestly reduce short-term borrowing costs by a quarter percentage point at the policy meeting next week.
U.S. Federal Reserve policymakers believe that the labor market is cooling but not collapsing could still remain intact, although new data shows that employers in the U.S. hired fewer workers in October than any month since December 2020.
The increase of 12,000 non-farm jobs last month fell far short of the 113,000 that economists predicted. However, analysts largely attributed this weakness to tens of thousands of temporary workers losing their jobs due to the Boeing strike and the impact of two major storms in the Southeastern U.S., as well as poor response rates obscuring the actual state of employment in the U.S.
About 512,000 people reported that they could not work due to bad weather - the highest number in October since the Bureau of Labor Statistics began tracking data in 1976.
The unemployment rate remains at 4.1% - a very low level by historical standards.
According to Scott Anderson, chief economist for the U.S. at BMO Capital Markets: "Bad weather and major worker strikes muddy the waters and make the labor market appear weaker than it actually is. However, the Fed's job is to look through the reality, and they may view some signals from the labor market continuing to weaken as a sign that they must continue the monetary normalization process without fearing another inflation outbreak."
In addition, data early this week showed that inflation according to the Fed's target was 2.1% in September, just slightly above the 2% target, although core price pressures are expected to keep U.S. central banks cautious about declaring victory too soon.
Notably, futures prices on interest rates on November 1 do not reflect the Fed's likelihood of cutting rates by another half a percentage point - as it did in September when it began easing policy to prevent a downturn in the labor market.
Futures traders paid based on the Fed's policy interest rate have instead shifted to pricing in about a 99% chance that the central bank on November 7 will cut its policy rate by a quarter percentage point down to a range of 4.50%-4.75%, compared to 92% before the employment data was released. They see about an 83% chance that the policy interest rate will be at 4.25%-4.50% by the end of this year, up from 69% previously.
It is known that Fed policymakers will begin their policy meeting after the U.S. presidential election on November 5. Many analysts view the election uncertainty as a temporary burden on the labor market in October and may be reversed in the coming months.
Financial markets are currently assessing that the Fed will lower the policy interest rate to 3.50%-3.75% in September next year.
The Fed's rate cut benefits Southeast Asia's emerging markets.
According to CNBC, higher interest rates in the U.S. are typically a negative factor for emerging markets as U.S. investors tend to repatriate money to seek profits through investment channels.
Therefore, the Fed's rate cut could boost capital flows into emerging markets. Both Indonesia's rupiah and Thailand's baht appreciated against the USD following the Fed's decision in September - partly due to investors moving large amounts of money from U.S. government bonds to Southeast Asia's developing markets.
Typically, Mr. David Sumual - chief economist at Bank Central Asia (Indonesia) emphasized that Indonesia is one of the countries that could benefit from the Fed's subsequent interest rate cuts, mainly through commodity channels. Additionally, the country has the potential to benefit from investment capital flows, particularly in the stock market.
( According to CNBC)