The Fed will not run after the ECB: focus on employment data

The decision of ECB Of cut rates “solo” after five years it won't rush the Federal Reservewhich decided to wait until the autumn to review monetary policy, even with a job market which gives some sign of weakening. The confirmation will come today, as the report on the American labor market (Job Report) is scheduled, after the disappointing numbers released by ADP on the private sector.

In Europe, the ECB yesterday announced the first rate cut in five years to 4.25% (-25 basis points) and the first action on rates starting from September 2023. A decision anchored to the prospects for inflation and growth, where but the price growth, although revised upwards in this round of projections, it is still confirmed close to the 2% target.

Fed cut not before September

This is not the case for the Fed, which has to deal with one persistently higher inflation, linked to more structural factors and wage growth. The PCE (Personal consumption expenditure), a key indicator of inflation for the American central bank, increased by 0.2% monthly, in line with expectations, and by 2.8% year on year. This has strengthened expectations of a rate cut in September.

Inflation in the United States slowed marginally in April 2024, settling at +0.3% on a monthly basis, against the +0.4% change expected by analysts. On an annual basis, inflation growth is slowed to 3.4%, in line with consensus, after 3.5% in March. The “core” ratei.e. the consumer price index adjusted for the most volatile components such as food and energy, most closely monitored by the Fed, recorded an increase of 0.3% on a monthly basis, and of 3.6% trendin line with consensus, after +3.8% in March.

The dual mandate and the labor market

The US central bank's decision to cut rates will also have to be compatible with the signals coming from the economy and the job marketwhich is actually highlighting signs of weakening.

The growth of new jobs in the private sector American in May 2024 recorded a slowed to 152 thousand jobs, after the 188 thousand of the previous month. Analysts' expectations indicated an increase of 173 thousand units. A figure that does not bode well for the official report from the Department of Labor which will be published this afternoon.

At this point the spotlight is on the numbers of the employed in the non-agricultural sector (Nonfarm Payrolls), for which the consensus predicts an increase of 182 thousand units compared to the 175 thousand units detected in April. And for the private sector alone, growth of 170 thousand jobs is expected compared to 167 thousand in the previous month.

The next moves

Given that the first cut of Fed rates it could happen in Septemberat this point investors are betting on How many times the US central bank will cut rates this year, while they always are the probability of two cuts is lower before the end of the year. It will all depend on the data arriving this summer.