June Jobs Number Could Directly Impact Interest Rates

jobs employment unemployment Fed interest rates

Despite Independence Day falling tomorrow, June’s employment report release is scheduled for Friday morning. After May’s disappointing results, markets will look for a rebound in June’s numbers. The forecasted number is marginally lower than in previous months coming in at 160k new jobs.

With a looming Federal Reserve meeting in a few weeks, this report has the potential to move markets significantly. A number well below the consensus estimate could signal an interest rate reduction in the 50-basis point range instead of the projected 25-basis point range.

Fed Chairman Jerome Powell has said previously that the Fed looks at a three to six-month average for employment data to mitigate the impact from a single report. Unfortunately, looking back he may not like what he sees. Each of the last two reports have had revisions downward for the prior month. April was revised from 263k to 224k and March from 189k to 153k. If the same trend is revealed from May’s data, the already weak 75k will look even worse.

Conversely, it will be interesting to see how the Fed responds if the employment report shows a significant gain somewhere in the 200k range. This would suggest that the labor market is not weakening as much as some presume. The implication of a stronger labor market might be enough to stop the Fed from cutting rates later this month, something that seems assured and is likely priced into the markets at this point.

Regardless of the value, markets will be volatile on Friday given the lower trade volumes as people take long weekends. It is imperative traders have a plan in place to reduce their risk when trading these news events.

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