According to the latest data from the U.S. Bureau of Labor Statistics, the United States created 818,000 fewer jobs than expected from April 2023 to March 2024. Some have quickly blamed the Fed for falling behind the economic cycle, arguing that it should have lowered rates earlier. This situation, they say, supports the idea of a 50-basis point rate cut during the September 17-18 meeting, instead of the 25-basis point cut predicted by Bloomberg consensus. However, this interpretation is incorrect in Alin Latu's opinion.
Employment figures in the U.S. are often subject to significant revisions. A decrease of 800,000 jobs compared to the initial estimate might seem substantial, but it's not as significant when compared to previous years. What's more, we should avoid overinterpreting this figure since the final estimate, which might differ from the recently published one, won't be released until February 2025.
When considering the data within a broader scope and high-frequency indicators (hotel occupancy rates, Broadway show bookings, etc.), it's clear to see that the economy remains strong. It may be slowing down but American consumers continue to spend at a solid pace. The Fed is therefore timing its rate cut cycle perfectly—not too early, not too late. There's no need to rush: a 25-basis point cut in September will hit the spot.
European Central Bank (ECB): Too Little, Too Late
In the Eurozone, growth once again fails to exceed 1%. Why? Its monetary policy is not accommodative enough. Given the European economic situation, we believe that a 50-basis point rate cut in September would be more justified than the 25-basis point cut initially planned. So, how can the recent appreciation of the euro be explained? Much has been said about this in recent weeks: increased investor optimism regarding Eurozone growth, expectations of Fed rate cuts, etc.
In reality, the decline in U.S. bond yields is the primary driver of EUR/USD appreciation. This encourages investors to shift away from the dollar and into other currencies, like the euro. However, it's uncertain whether this will last. The structural economic gap between the Eurozone and the U.S. is a long-term factor that could weigh down the euro.
Bank of Japan: Finally, Among the Top Performers!
Is Japan becoming a "normal" economy again? Since 2022, inflation has returned, wages have increased substantially—with a negotiated rise of 5.3% in spring 2024—and the stock market has awakened from its slumber. It's finally the end of deflation!
While Japan's aging population and astronomical debt remain structural problems, its economy seems to be back on track. Wage increases have boosted consumption, reduced saving behavior, and there has also been a significant rise in corporate investment. A virtuous cycle is taking shape.
The role of the Bank of Japan is now to solidify Japan's economic trajectory. Another rate hike is certainly necessary. It likely won't happen this month, but rather in the fourth quarter, with an increase of 10 basis points. This move is supported across the political spectrum, including by Shinjirō Koizumi, who could become Japan's next Prime Minister following the Liberal Democratic Party's internal elections scheduled for September 27 (date to be confirmed).
