Tonight's Non-Farm Payrolls May Indicate the Direction of Powell's Policy Endgame! The Unemployment Rate is the Core Key

Federal Reserve Chairman Jerome Powell clearly stated on Wednesday that the currently resilient U.S. labor market has become the primary determinant of monetary policy. This signal implies that if July's employment data is strong, it could completely extinguish expectations for a rate cut in September and reduce the likelihood of further easing this year.

At the press conference following the Federal Open Market Committee (FOMC) meeting, Powell insisted that the next actions of this rate-setting body will depend on the overall performance of economic data. He acknowledged the reasons supporting easing, such as slowing consumer spending, GDP growth of only 1.2% in the first half of the year, and the downward risks to the job market due to weakening labor supply and demand.

However, he also explained the reasons for the Fed's maintenance of a moderately tightening stance: "The core data that needs the most attention right now is the unemployment rate," Powell told reporters.

This firm stance is particularly noteworthy, as governors Christopher Waller and Michelle Bowman voted in favor of easing — marking the first time in over 30 years that two dissenters appeared at a Federal Reserve policy meeting.

However, Powell has sound reasoning. Due to tightened immigration controls limiting the influx of foreign labor, the job market overall remains balanced. Other indicators, such as resignation rates and job vacancy rates, are also performing robustly. Moreover, a 4.1% unemployment rate is difficult to justify as a reason for a rate cut.

The initial market reaction following Wednesday's FOMC decision — a drop in U.S. stocks, a rise in bond yields, a surge in the dollar, and a further cooling of rate cut expectations in the money market — indicates that investors accurately received Powell's signal.

The interest rate futures market now shows that the probability of a 25 basis point rate cut in September is essentially a coin flip, marking the least dovish pricing in over a year. The market has fully absorbed the expectation of only one rate cut this year. #BTC