- After the weak August data and the downward reviews of previous figures, the speech on The US labor market is evolving: Unemployment already exceeds the number of employment vacancies available.
- The Federal Reserve seems willing to approve a reduction of 25 basic points at its meeting this week. Some members are likely to vote in favor of greater cuts.
- The markets are discounting an accumulated drop in interest rates of 140 basic points in the next 12 months. Without a recession, these levels seem optimistic.
- Variable rental markets continue to focus on positive factors. Assuming a soft landing stage and imminent type cuts, we see margin for greater climbs.
In the last two weeks there has been a significant change in the speech on the US labor market. Although a marginal moderation was observed for a long time, the weak non -agricultural employment data of August, together with annual reviews until March 2025, now point to a considerably weaker labor market than estimated. The downward reviews in the annual employment figures – with an accumulated cut of 911,000 jobs until March 2025 – suggest that, probably, three months of greater loss have been recorded than employment creation in the last 18, and for the first time since 2021, the number of unemployed people exceeds that of available vacancies.
There are currently 7.4 million unemployed in the United States and only 7.2 million jobs available. Both supply and employment demand are decreasing.
Although companies are not yet dismissed, they are either hiring. It is possible that the labor market is not weakening as much as in previous cycles due to a lower supply of labor motivated by the decrease in migration.
All this feels the foundations for a Very interesting federal reserve meeting this week: The markets are discounting a probability of 100% type cuts in 25 basic points, although communications that accompany the decision could generate more interest, given that we have previously seen divisions in the Fed votes and some members are expected to vote in favor of more aggressive type cuts.
On the other hand, Inflation is stabilizing around 3%, above the targetalthough we have not yet seen a great impact of tariffs. However, we see bullish pressure signs in basic products prices, where tariffs will probably be felt with greater intensity. Although these products represent only about 19 % of the inflation basket, the underlying trend is upward.
With a 25 -point discount practically guaranteed, The markets are discounting total type cuts of 140 basic points over the next 12 months. This seems optimistic, since normally that level of declines occurs in the context of a recession. Is the United States entering recession? Undoubtedly, current data does not suggest it, so perhaps markets should be careful with what they want.
That said, The Fed leadership and the composition of its board are expected to change soon. It is likely that a new president of the FED be appointed before Christmas, and modifications are also expected in the Board of Governors, with a possible inclination towards more moderate positions- and aligned with the vision of President Trump- regarding interest rates.
Therefore, according to Columbia Threadneedle, We are likely to face slightly higher inflation and greater unemployment in the United States. With the Federal Reserve willing to relax its monetary policy, it is very possible that we see a favorable context for variable income, assuming a soft landing scenario. Stock markets are reacting positively, with the S&P 500 reaching historical maximums last week.