Barclays said on Thursday that it expects an extended hold in policy rates, dependent on inflation, activity, and labor market conditions moderating through the summer.
- Warsh’s speech at the European Central Bank Forum in Sintra, Portugal, offered few clues about the central bank's policy path going forward.
- Meanwhile, U.S. payrolls rose by 57,000 in June, missing Wall Street analysts' expectations of 115,000 jobs.
- Chief Market Strategist at WellingtonAltus, James E. Thorne, is taking a contrarian stance, saying the Fed's next move on rates will be a cut.
A weaker-than-expected jobs report and Federal Reserve Chair Kevin Warsh’s guarded remarks at the European Central Bank Forum in Sintra, Portugal, have reduced the odds of a rate hike at the Federal Open Market Committee (FOMC) in July, according to Barclays.
U.S. payrolls rose by 57,000 in June, missing expectations for 115,000 jobs, while downward revisions to April and May payrolls signaled slower hiring. The unemployment rate edged down to 4.2%, beating forecasts of 4.3%
Meanwhile, Warsh’s speech at the ECB offered few clues about the ECB's policy path, but he did highlight that inflation was currently “too high.”
"Our baseline remains an extended hold in policy rates, conditional on inflation, activity, and labor market conditions moderating through the summer," Barclays said in a note on Thursday, according to Investing.com.
"The principal risk is that gains in employment and spending re-accelerate while labor supply remains constrained, keeping inflation pressures elevated and placing hikes on the table," the firm added.
Wall Street Largely Bets On Steady Interest Rates
"Warsh’s remarks at Sintra provided no clues about how policy might respond to data just as the economy approaches a critical juncture," Barclays said.
The firm reportedly said the jobs report, meanwhile, pointed to a moderating labor market, potentially due to slower immigration and labor supply constraints. When viewed together, the Fed's rate trajectory seemed uncertain, as per Barclays’ analysts.
Warsh declined to signal the direction of the next rate decision, saying policymakers will have a "good debate" when they meet in four weeks.
Allianz Chief Economic Advisor Mohamed El-Erian said in a post on X following the jobs report that the supply side of the labor force was the primary driver of the lower job creation. “As to implications for Fed policy, this should dampen market expectations for a rate hike this year—a scenario I have argued was a misreading of the Fed’s likely stance,” he said.
The Contrarian View
Meanwhile, James E. Thorne, Chief Market Strategist at WellingtonAltus, is taking a contrarian stance. “Ignore the noise. The next move in rates by the Fed will be a cut,” he said, sharing a chart of the U.S. 2-Year Treasury Note in a post on X late Sunday.
According to data from the CME FedWatch tool, the probability of the Fed holding rates steady is 78.1%, while the odds of a rate hike are 21.9%. A month ago, the probability of a rate hike was at 12.5%.
At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up by 0.38%, the Invesco QQQ Trust ETF (QQQ) climbed 0.92%, and the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.02%.
The iShares 1-3 Year Treasury Bond ETF (SHY) was up 0.04% amid ‘neutral’ sentiment.
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