BlockBeats News, August 8, BCA Research analyst Dhaval Joshi pointed out that the current market pricing of U.S. interest rates is severely deviating from the Federal Reserve's stance, and mispricing may be brewing. Trump is calling for a 3% rate cut from the Fed, and given that the July employment report shows a significant slowdown in the U.S. labor market, Trump seems to have the upper hand in this 'struggle' with Powell, but attention should be paid to the real reasons behind the labor market slowdown.
Joshi stated that the weakness in the labor market typically stems from a weakening in labor demand; however, that is not the case now. The reason is that job growth is not driven by demand for workers but rather by the number of workers available for hire (labor supply). Worse still, a rate cut would exacerbate the imbalance between labor demand and supply, potentially reigniting inflation without boosting employment growth. Therefore, this would be a policy mistake.
It is essential to distinguish between data before and after revisions. Most economic data is initially released based on incomplete information, which is a trade-off made for the sake of timeliness. Thus, the more one desires timely data release, the lower its accuracy tends to be. Once the data is adequately revised to include a complete set of information, it becomes more accurate. Therefore, the initial release of data is less about being 'manipulated' and more about being 'inaccurate' due to incomplete information. Looking at the revised and more accurate total U.S. employment data, the picture is clear and consistent: the upward trend in employment is primarily attributed to an increase in labor supply, while the recent weakness in job growth is due to a slowdown in the growth of labor supply, not due to a decrease in labor utilization (i.e., an increase in the unemployment rate). All of this will lead to a significant mispricing in the U.S. interest rate market.
