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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Official Website]: June JOLTs data is weak, and the Federal Reserve's interest rate resolution faces political and economic pressure." Hope it will be helpful to you! The original content is as follows:
On Tuesday, as investors waited for the Federal Reserve's interest rate decision, a series of important economic data and the results of U.S. trade negotiations, the US dollar index continued to rise. As of now, the US dollar price is 98.87.
1. Tariffs
①Trump: If a ceasefire agreement with Ukraine is not reached within 10 days, tariffs will be imposed on Russia. If sanctions are imposed on Russia, there is no need to worry about oil prices.
②U.S. ngjpn.cnmerce Secretary: Trump will announce pharmaceutical industry policies in the next two weeks.
③ It is reported that the EU intends to purchase 40 billion euros worth of artificial intelligence chips in the US trade agreement.
④Mexican President: Mexico’s goal is to reach a tariff agreement with the United States this week.
⑤ It is reported that India is expected to reach a trade agreement with the United States in September or October, preparing to impose tariffs of 20% to 25% on it.
⑥Trump: India may face 20%-25% tariffs, but the agreement has not yet been finalized.
2. Fed interest rate resolution trends
① Director Kugler was absent from this week's interest rate meeting due to private missed the vote ngjpn.cnmittee, and the vote ngjpn.cnmittee temporarily dropped to 11 people.
② "Federal Mouth Bottle": The Fed will eventually need to continue to cut interest rates, but they are not ready to cut interest rates this week.
The vacancies for JOLTS in the United States in June were 7.437 million, which was lower than expected, and the recruitment was released.slow. Thai military: Cambodia once again violates the ceasefire agreement and launches an attack.
According to the Canadian Globe and Mail: A person familiar with the matter revealed that the Canadian government is considering whether to follow the example of British Prime Minister Stamer and that if Israel does not agree to the ceasefire, they will recognize the Palestinian state.
According to Reuters/Ipsos poll: Trump's approval rating dropped to 40%, the lowest level since his second term.
IMF raised its global economic growth forecast this year to 3%, raising its U.S. growth forecast to 1.9%, and raising its China growth forecast to 4.8%.
Li Chenggang: China and the United States will continue to promote the suspended 24% of the US reciprocal tariffs and the extension of China's countermeasures as scheduled. The economic and trade teams of China and the United States will continue to maintain close ngjpn.cnmunication and ngjpn.cnmunicate in a timely manner on economic and trade issues.
We expect the Federal Reserve to keep interest rates unchanged for the fifth consecutive time at its July 30 meeting and continue to implement its "indefinite wait-and-see" policy stance. There are few substantial changes expected to be made, and Chairman Powell's press conference may also be very similar to what it performed in June. Two members are expected to vote against this meeting.
We believe that FOMC is walking on a narrow, difficult and uncertain path, with two major abysses on both sides: one side is the risk of a severe recession in the United States, and the other side is the risk of high inflation solidifying in the medium and long term economy. If the timing of interest rate cuts is not appropriate—too early or too late—it can lead the U.S. economy to any of the above-mentioned costly and irreversible risks. Therefore, the direction of progress is not clear, and the views within FOMC on how to take this path are becoming increasingly differentiated.
Long-term view: Maintain interest rates until the end of the year
We have maintained this judgment since December 2024: The Fed will keep its policy unchanged by the end of this year until policymakers are convinced that the uncertainty of the tariff effect has basically been eliminated unless there are obvious signs of recession. Against the backdrop of uncertainty in tariff policies, economic growth remains resilient, and inflation rises again, we believe that the FOMC will continue to adopt a "sequence-by-session" approach to maintain existing policies before sufficient signals are obtained.
Press Conference Outlook:
The focus of the July press conference will be on how Powell sets expectations for the September conference. Considering that the FOMC meeting will usher in a key node in trade policy soon after the end of the meeting, and two rounds of employment and inflation data will be released in the next two months, we expect Powell to remain open to policy choices. He is unlikely to suggest any specific path using preset language like “policy will remain unchanged for a period of time” or “it may soon be suitable for lowering the federal funds rate.” However, we expect him to express the following clearly: If inflation accelerates and labor markets continue to be strong, these situations willRate cuts are not supported. In addition to keeping open options for September and downplaying the probability of rate cuts, Powell may continue his previous ngjpn.cnmunication style. For example, he is likely to continue to emphasize that the current policy position is "slight austerity."
The number of new jobs: 120,000; unemployment rate: 4.2%; average monthly hourly wage rate: 0.3%
The number of non-agricultural employment in June was 147,000, basically the same as last year's average, just in the middle of the range of 100,000 to 200,000, which is consistent with the stable labor market assumption. We expect the number of household survey jobs to decline again in July; if it weren't for the decline in labor participation, the unemployment rate should remain at 4.2%. It is worth noting that the employment rate is currently 0.4% lower than its peak in January. Finally, we expect employment growth to slow down further in the future and the unemployment rate will be on the rise, provided that the labor participation rate remains relatively stable. However, due to immigration pressure, unemployment and labor participation rates are still at risk of decline.
Number of new jobs: 120,000; unemployment rate: 4.2%; average hourly wage monthly rate: 0.3%
We expect non-agricultural data to perform steadily, with 120,000 new jobs in July, higher than market expectations. However, growth will slow down ngjpn.cnpared to nearly 150,000 jobs last month, mainly due to the decline in state and local government recruitment after an unexpected surge last month. The household survey shows that the unemployment rate has declined after four consecutive months of rising in June, with the unemployment rate expected to rise by one percentage point to 4.2% in July. Recruitment and wage growth may continue to slow, which will curb labor income and curb consumption growth. While our view on non-farm employment data is slightly higher than the general market expectations and the market may reduce some of its bets on the Fed's interest rate cut, the uncertainty that may attract market attention is the data correction, and this year's revised data once again systematically shows a negative trend.
If the Federal Reserve's responsibilities are guided, then it has no reason to cut interest rates in July. First is the labor market, which currently shows no sign that it is suffering from inappropriate monetary policy implications or requires monetary policy stimulus for other reasons. At the same time, inflation is still higher than the target level, and the upward risk is still huge in the short term. Therefore, we believe that the inflation outlook strongly indicates that the policy stance of “moderate restrictions” will be maintained in the ngjpn.cning months. Data so far suggest that the possibility of gradual transmission of tariffs seems to be greater.
In view of the current economic background and our strong agreement with Powell's description of the Fed's current policy position "moderate restrictions", we expect the Fed to keep interest rates unchanged until the end of this year, which means no further rate cuts will be cut by December.(We believe that the probability of interest rate cuts is 55%).
In addition, we believe that the second most likely scenario is that there is no interest rate cut at all in 2025 (the probability is 25%), which actually means that the probability of the US economy continuing to show resilience is 80%.
We believe that the third most likely scenario is the current undervalued markets, which is the federal funds rate cut by 50 basis points by the end of the year. We believe that ngjpn.cnpared with the gradual recovery of interest rate cuts in October or November, if the U.S. economy starts showing obvious signs of weakness later this year and inflation pressures show signs of a clear weakening, it may cut interest rates by 50 basis points later this year. In other words, due to uncertainty in the inflation outlook caused by tariffs, signs of a significant weakening of labor market conditions, or the small impact on inflation and short duration, the Fed is particularly cautious about extending/resuming easing cycles, which may lead to weaker economic growth and inflation outlooks, while reducing uncertainty, leading to increased monetary policy responses – we believe that the probability of this happening is 20%.
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