Hana Securities "High Possibility of US Fed Holding Interest Rates Steady in June"

by Hwang Yoonju

Published 11 Apr.2024 07:48(KST)

[Image source=Yonhap News]

Hana Securities analyzed on the 11th that the likelihood of the U.S. Federal Reserve (Fed) holding the benchmark interest rate steady at the June Federal Open Market Committee (FOMC) meeting is increasing. From a data perspective rather than potential risks, it is considered burdensome to rush into a rate cut.

Lee Young-joo, a researcher at Hana Securities, stated, "If the ideal employment scenario continues next month, the Fed will take a more relaxed approach and look for an appropriate timing for a rate cut."

The U.S. nonfarm payrolls for March increased by 303,000 compared to the previous month, significantly exceeding the expected figure of 200,000. The average hourly wage growth rate rose by 0.3% month-over-month and 4.1% year-over-year. The average hourly wage directly impacts inflation. Although there were concerns about wage increases due to the employment surprise, fortunately, it matched expectations.

The wage growth rate peaked at 5.9% in March 2022 and has been gradually declining over the past 24 months. During the same period, employment increased by an average of 280,000 per month, showing nominal strength compared to previous times. Nevertheless, there is a growing diagnosis that the wage growth rate may decline further. This is because the quality of employment is deteriorating, and leading employment indicators are slowing down.

The decline in employment quality is observed from various aspects. The researcher pointed out, "Since the beginning of this year, the proportion of non-regular jobs has sharply increased, while the proportion of regular jobs has rapidly decreased." An increase in jobs centered on low-income sectors is also noticeable. The researcher explained that the expansion of immigrant inflow is driving the increase in low-income sector jobs.

Leading indicators of the employment market are also showing a slowing trend. The researcher explained, "The proportion of U.S. states where the unemployment rate has risen compared to 12 months ago has increased," adding, "Although the unemployment rate level itself is low, the speed of its spread has already reached the early stages of a recession, so there is a high possibility of a widespread employment slowdown."

The gap between indicators leading the employment market by about 3 to 6 months and actual employment data is widening. The researcher evaluated, "Small business hiring plans surveyed by the National Federation of Independent Business (NFIB) have declined for four consecutive months," and "Employment confirmed in the early April ISM survey has entered a contraction phase in both manufacturing and services, especially with a decrease in new orders and a sharp drop in backlogs in the service sector, making future employment slowdown inevitable."

Although employment figures appear favorable on the surface, the hidden circumstances are different, so the inflationary pressure from wages continues to decrease. The researcher pointed out, "Ultimately, the employment market will gradually slow down nominally as well," adding, "This could be the most ideal path the Fed has hoped for."