Fed to announce 125 bps for remainder of 2024
|The US payrolls report for July was unambiguously weak, with low headline job creation (114k vs. 175k), another increase in the unemployment rate to 4.3%, its highest level since October 2021, and weak wage growth (3.6%).
The data seemed to take the Federal Reserve by surprise, as while the FOMC strongly indicated that a September cut was on the way, it gave no hints of an accelerated rate cut timetable following its meeting last week.
We think expectations for cuts, which are now pricing in the equivalent of five full 25bp cuts (125 basis points) for the remainder of 2024, implying a couple of 50 basis point cuts, are an overreaction to what is so far the first weak labour market report of 2024. It does seem clear that in the absence of first-tier data out of the US this week, the dollar may struggle.
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