Focus on Nonfarm Payrolls

Industry surveys indicate that the U.S. is expected to add 75,000 nonfarm payroll jobs in August, slightly higher than the 73,000 added in July. The unemployment rate is projected to rise from 4.2% in July to 4.3%.

Gargi Chaudhuri, Chief Investment and Portfolio Strategist for the Americas at BlackRock, stated, "The Fed is expected to cut interest rates in September, and Friday’s data will be crucial. For Fed policymakers to consider measures other than a 25-basis-point rate cut at the September 17 meeting, August’s employment data would need to be either very strong or very weak."

"We have significantly adjusted our expectations and now anticipate a 50-basis-point rate cut by the Fed in September, as the labor market has clearly weakened... We expect Friday’s report to show more signs of weakness. If we recall the Fed’s reaction mechanism from a year ago, when they also implemented a 50-basis-point cut, the current labor market appears even more fragile based on the latest data," Griffiths said.

On the other hand, George Catrambone, Head of Americas Fixed Income at Deutsche Asset Management, predicts that if nonfarm payrolls increase by around 70,000 or more, the bond market may decline, with short-term bonds potentially experiencing larger losses. He noted, "This could make the Fed’s September decision more unpredictable."

Currently, Fed officials remain divided on the necessity of rate cuts pushed by the Trump administration. New York Fed President John Williams said in a speech on Thursday that his forecast suggests rate cuts will "become appropriate over time," but he also emphasized the need for a "delicate balance" between employment and inflation risks. Cleveland Fed President Loretta Mester reiterated in an interview published on Thursday that current inflation levels are too high, and a rate cut this month is inadvisable.

However, two Fed governors—Waller and Bowman—who dissented from the decision to keep rates unchanged in July, remain firm advocates for rate cuts. Waller even expressed support for "multiple rate cuts" in the coming months earlier this week.