Big Surprise in U.S. December Employment Data
Fed's Big Step May Have Been Excessive
Considering External Factors Is Advantageous for the MPC
NH Investment & Securities has adjusted the timing of the U.S. Federal Reserve's (Fed) rate cuts from the previously expected March and September to June and December. The Bank of Korea's January Monetary Policy Committee (MPC) is expected to keep the base rate unchanged and anticipate a rate cut in February.
Seungwon Kang, a researcher at NH Investment & Securities, stated, "The U.S. employment data for December showed a big surprise," adding, "This suggests that the surprise big-step rate cut might have been 'excessive.'"
On the 10th (local time), the U.S. Department of Labor announced that nonfarm payrolls increased by 256,000 in December compared to the previous month. This figure significantly exceeded the expert forecast of 155,000 compiled by Dow Jones, as well as the average monthly increase of about 150,000 in the second and third quarters of last year.
The unemployment rate in December last year also fell to 4.1% from 4.2% in the previous month, and was below the expert forecast of 4.2%. The 4.1% unemployment rate is lower than the natural unemployment rate (4.4%) estimated by the U.S. Congressional Budget Office (CBO), indicating that the U.S. economy is in a state of full employment.
Researcher Kang analyzed, "Given that the market's basic scenario already expects one rate cut within the year, our firm believes that concerns about a shift to a freeze or rate hike within the year are excessive," adding, "Especially, the sharp rise in market interest rates since September 2024 will bring tightening effects with a time lag."
Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee meeting held at the Bank of Korea in Jung-gu, Seoul on the 28th. Photo by Joint Press Corps
Along with this, the MPC viewed a rate cut in February as appropriate. The market consensus in January leans toward a rate cut in January. The main events for the MPC currently are summarized as Trump's inauguration, U.S. first-quarter Treasury issuance, and the January FOMC.
Researcher Kang said, "The outcomes of these major events should be regarded as constraints on monetary policy that the Bank of Korea cannot respond to," and added, "Before confirming these results, it is a superior strategy to signal a willingness to stimulate the economy with a freeze at the January MPC, rather than implementing a rate cut."
He further recommended using any rate rebound around the January MPC as a buying opportunity.
He evaluated, "If the rate is held steady in January, some expectations for a January cut will emerge, leading to a rebound in market interest rates. However, it is important to remember that delaying the timing of a rate cut during a clear economic slowdown phase is a long-term factor for rate declines."
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