Originally, I planned to write this on Friday during the day, but since a friend asked, I'll discuss it now. Everyone knows that the Federal Reserve's current interest rate cuts are based on two factors: the economy and inflation. In terms of the economy, the short-term focus is more on labor data, and we won't discuss inflation for now, as it currently falls within the Fed's expected range. Moreover, a decrease in inflation in the short term also requires cooperation from the economy.

The key point is labor, which Powell has emphasized repeatedly. There are two main aspects of labor:

One is the unemployment rate.

The other is wage growth.

The unemployment rate represents the state of economic development. When the unemployment rate rises, the market anticipates an economic recession, and the Fed is also concerned about the possibility of a recession. Therefore, they balance the relationship between recession and inflation. In simple terms, if the unemployment rate rises, the Fed will consider additional interest rate cuts.

This is what Powell himself said during the September meeting, so we can initially think of it simply as:

Rising unemployment rate = Increased probability of Fed rate cuts.

The more the unemployment rate rises = The more rate cuts expected in 2025.

But does a higher number of rate cuts necessarily mean good news? Not necessarily. As I mentioned earlier, if the unemployment rate is too high, it raises concerns about an economic recession, which is much worse than simply reducing rate cuts. Therefore, under the premise of a rising unemployment rate, we also need to look at changes in employment numbers.

I wonder if anyone remembers that there have been instances in the past where the unemployment rate rose, but employment data also increased. This is because the new labor force population was growing. Although the unemployment rate rose, the labor force was also increasing. In such cases, we wouldn't simply consider it an economic recession. So if Friday's non-farm data reflects this, it would be good news.

The unemployment rate is expected to rise slightly, with the previous value at 4.2%, market expectations at 4.2%, and Bloomberg's expectation at 4.4%.

The previous non-farm employment figure was 227,000, with market expectations at 160,000. Based on this data, a decrease in non-farm employment is highly probable, and maintaining or slightly increasing the unemployment rate is also likely. Therefore, theoretically, this is slightly positive. If the unemployment rate rises but employment also increases, it should be very positive. However, if the unemployment rate rises and employment decreases, it indicates a downward trend in the U.S. economy.

Moreover, this data is completely opposite to Tuesday's job vacancies, as job vacancies indicate that employers have a greater demand for labor, which should lower the unemployment rate and improve employment data. Thus, the market expects the economy to be strong, and the Fed will either reduce or maintain the number of rate cuts.

However, if Friday's non-farm data shows a rising unemployment rate and declining employment, it would mean that the Fed will open up more opportunities for rate cuts. It's a bit early to talk about an economic recession, as market data is still quite good. So I think if it does happen, it should be slightly positive. Of course, if the market insists on interpreting it as an economic recession, then there's nothing we can do.

So, regardless of how the unemployment rate data looks, it seems to be bad data. A rising unemployment rate raises concerns about an economic recession and increases the number of rate cuts, while a declining unemployment rate suggests a strong economy, leading to unchanged or reduced rate cuts.

I discussed the unemployment rate topic in my tweet "The Last Drop." Interested friends can check it out.

Address: https://x.com/Phyrex_Ni/status/1785604678606369221

This tweet is sponsored by @ApeXProtocolCN | Dex With ApeX

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