April's non-farm data shatters hopes; the Federal Reserve's rate cut window may be completely closed.

Huitong Finance APP News — If the Federal Reserve still has reasons to cut interest rates in the near future, those reasons are becoming increasingly hard to find.

The non-farm employment report released last Friday provides the latest evidence, showing that the Fed’s primary concern is no longer a weakening labor market, but the increasingly unaffordable high living costs for ordinary Americans. The report indicates that the employment situation has stabilized, further reducing the urgency for the Fed to cut rates.

Stable Employment Eases Pressure to Cut Rates

Last month, non-farm employment increased by 115k jobs, a figure that, while not strong, clearly shows the labor market has basically stabilized, easing concerns about economic downturns. In contrast, there are no signs of improvement in inflation, which is likely to push the Federal Open Market Committee (FOMC) toward a more hawkish policy stance, with officials inclined to maintain current interest rates for a longer period.

Lindsay Rosner, head of fixed income at Goldman Sachs Asset Management, said that once the labor market returns to normal, the Fed will focus on controlling inflation risks. The FOMC is likely to remove its dovish tone in the statement after the June meeting, meaning hawkish opinions are temporarily dominant.

At last week’s FOMC meeting, three regional Fed presidents voted against the post-meeting statement. They did not oppose the decision to keep rates unchanged but objected to the language in the statement, which was widely interpreted as hinting at a possible rate cut next time.

Inflationary Pressures Continue to Rise

Austan Goolsbee, President of the Chicago Fed, said last Friday that he has never been particularly inclined to influence policy decisions through words. He added that he is concerned about the current inflation trend: “We have been above the Fed’s 2% target for five years. Last year, we stopped making progress, and over the past three months, inflation has not only failed to decline but has actually increased. We need to pay close attention to this because if everyone starts to assume inflation will return to the levels of a few years ago, the central bank will be in trouble.”

Goolsbee further pointed out that inflationary pressures are not only from gasoline and tariffs but are increasingly reflected in service costs. The consumer price index in March showed that the U.S. inflation rate reached 3.3%, well above the Fed’s 2% target.

Faced with higher inflation and a stable labor market, traditional monetary policy generally does not support rate cuts. The latest data trends also support the Fed continuing to hold current rates while keeping options open, including rate hikes.

Scott Clemons, Chief Investment Strategist at Brown Brothers Harriman, said this gives the Fed ample patience, as there are no economic factors requiring further rate reductions.

The New Chair Faces Tests

According to federal funds futures pricing, the market has largely ruled out the possibility of rate cuts before April 2031, with the yield curve instead implying a higher probability of rate hikes in the coming years.

Dan North, Senior Economist at Allianz North America, pointed out that recent data make it easier for the Fed to maintain steady rates, and it might even shift policy direction next year.

However, this situation is quite tricky for the upcoming Fed Chair Kevin Warsh. President Trump appointed Warsh, expecting him to push for lower rates. Warsh has previously publicly expressed a preference for lower federal funds rates, believing that the Fed can effectively control inflation while easing policy, and advocating to focus more on the Fed’s current $6.7 trillion balance sheet rather than the current overnight funds rate.

North said that pushing for rate cuts with inflation above 3% would be a huge challenge for Warsh, especially considering the committee’s overall inclination. “When Warsh takes office, he might expect occasional internal discussions, but that may not be the scenario he anticipated.”

Overall, the April employment data combined with ongoing inflationary pressures further reduce the likelihood of a rate cut in the near term. Future policy directions will depend not only on economic data but also on testing the new leadership’s wisdom in balancing growth and inflation control.

(Editors: Wang Zhiqiang HF013)

【Risk Reminder】According to foreign exchange management regulations, foreign exchange transactions should be conducted at banks or other designated trading venues. Private foreign exchange trading, disguised foreign exchange trading, arbitrage, or illegal large-scale foreign exchange transactions may be subject to administrative penalties by foreign exchange authorities; if a crime is involved, criminal responsibility will be pursued according to law.

Report