June Unemployment Rate Hits Highest in 2 Years 7 Months
PMI 48.8, Signal of Slowing Growth
As expectations for a U.S. interest rate cut in September grow, the market is closely watching what Federal Reserve Chairman Jerome Powell will say when he appears before Congress soon.
According to Bloomberg on the 6th (local time), Chairman Powell will testify on monetary policy before the Senate Banking Committee on the 9th and the House Financial Services Committee on the 10th.
Recent indicators supporting a potential U.S. interest rate cut have been continuously released, fueling market expectations. The U.S. unemployment rate for June, announced on the 5th, rose to 4.1%, up from 4.0% in May, marking the highest level in 2 years and 7 months since November 2021 (4.1%).
Earlier, the Institute for Supply Management (ISM) reported that the June Services Purchasing Managers' Index (PMI) stood at 48.8, the lowest since May 2020 (45.4) when the COVID-19 pandemic was at its peak, signaling a slowdown in growth.
Accordingly, according to the Chicago Mercantile Exchange (CME) FedWatch, the futures market estimates about a 77.9% chance that the benchmark interest rate will be lower in September than it is now. This is an increase from 64.1% a week ago. The view that there will be two or more rate cuts of 0.25 percentage points within the year also rose to 76.5%, up from 63.3% a week earlier.
The market is also optimistic about the June Consumer Price Index (CPI) to be released on the 11th and is paying close attention to the Producer Price Index (PPI) announcement on the 12th. The CPI inflation rate (year-over-year) rose from 3.1% in January to 3.5% in March, raising concerns about a prolonged high interest rate environment, but Bloomberg reported that it is expected to fall back to 3.1% in June.
Additionally, the core CPI (excluding volatile food and energy) is projected to increase by 0.2% month-over-month for two consecutive months, the first time since August last year. Bloomberg Economics forecasted, "With inflation indicators slowing in June, July, and August, the Fed will gain sufficient confidence to begin cutting rates in September."
Meanwhile, with the November presidential election approaching, some opinions suggest that lowering the benchmark interest rate could stimulate the economy and help President Joe Biden’s reelection bid, leading to close attention on the timing of any rate cuts.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
