Non-Farm Data "Stable Yet Soft" Supports Fed's Wait-And-See Stance
Nick Timiraos, known as the "New Fed Whisperer," pointed out that although the U.S. June non-farm employment data slightly exceeded expectations, it is unlikely to change the Fed's cautious pace this summer. The June non-farm added 147,000 jobs, with the unemployment rate unexpectedly dropping to 4.1%, indicating a robust labor market with no signs of overheating, providing the Fed a reason to continue their "patient" waiting.
Timiraos believes this "neither good nor bad" report helps the Fed remain steady. Powell has also stated that a robust labor market allows room to observe policy changes, and it is anticipated that the interest rate will likely remain unchanged at the end of July's meeting.
Policy Focus Shifts to Impact of "Immigration Trade Policy"
Timiraos mentioned that the Fed is evaluating the impacts of stricter immigration policies, increased tariffs, and government layoffs as "policy experiments," especially focusing on structural changes in labor supply due to reduced immigration. He emphasized that the Fed now integrates job growth slowdown and unemployment fluctuations to analyze supply and demand changes.
Current job growth is slowing but the unemployment rate is falling, which reflects "supply contraction rather than weak demand." Several Fed officials predict that the future "break-even point" for new jobs may decrease due to reduced immigration, with 100,000 new jobs once again becoming a reasonable range for stabilizing the unemployment rate.
Ongoing Political Pressure Tests Powell's Independence
During the Fed's sensitive interest rate decision period, U.S. President Trump has continued to pressure Powell to resign and called for significant rate cuts to stimulate the economy. Recently, the Fed faced calls for a congressional investigation over headquarters renovations, and the FHFA director appointed by Trump accused Powell's testimony of being "deceptive," once again raising concerns about the Fed's independence.
Timiraos pointed out that the U.S. Supreme Court recently hinted that Fed officials have stronger protection from presidential removal, which supports Powell in maintaining policy independence amid intensified political pressure.
Interest Rate Cut Expected to Be Delayed
Although some Fed governors like Waller and Bowman support a July rate cut, Timiraos believes that most officials have not actively pushed for a July reduction. Powell recently stated that rate cuts will be "data-driven decision at each meeting," and hinted that "if summer inflation remains moderate, a rate cut may happen later this year."
Overall, the Fed is entering a new cycle of policy uncertainty alongside data observation, with a high probability of maintaining interest rates in July. Future rate cuts will depend on the impact of new variables such as immigration and trade on the economic landscape and inflation trends.
