25 or 50, the August non-farm payrolls "final word"
Given that the trend of slowing inflation has been established, coupled with the recent statements of senior Fed officials, a rate cut in September is almost a foregone conclusion. The biggest disagreement at present is whether to cut interest rates by 25 basis points or 50 basis points, with the probability of each happening being 41% and 59% respectively.
Overnight, the ADP new employment, known as the "small non-farm payrolls", unexpectedly hit a three-and-a-half-year low, and expectations of a 50 basis point rate cut rose. Some analysts believe that the Fed must cut interest rates at a faster pace to prevent the labor market from worsening.
The Fed's attention has completely turned to employment, so the non-farm payrolls, as the most important indicator of the U.S. labor market, the August report is likely to be the final word on the extent of the September rate cut. It is generally predicted that if the August non-farm payrolls data is strong, the rate will be cut by 25 basis points in September, but if the data is weak or the unemployment rate soars, the rate cut may be 50 basis points.
At the Jackson Hole Global Central Bank Conference, Fed Chairman Powell said "now is the time to adjust policy" with a focus on the labor market, especially after the release of the July employment report, adding that "we neither seek nor welcome further cooling of the labor market."
It is worth mentioning that Friday is also the last day for public communication before the start of the Fed's quiet period. New York Fed President John Williams and Fed Governor Christopher Waller will speak after the release of the non-agricultural report on Friday, which is the last chance for the market to price in the September interest rate decision.
