Core Insights - The U.S. labor market is experiencing a rare state of equilibrium, with both supply and demand contracting simultaneously, leading to a fragile balance [1][7] - Recent employment data shows a significant slowdown, with non-farm payrolls falling below expectations for two consecutive months and a three-month moving average dropping below 50,000 [3][19] - The labor supply is undergoing profound changes, with a decrease in the negative impact of immigration and a reduction in the effects of the retirement wave [12][14] Employment Data - Non-farm payrolls have seen a substantial downward revision, with a total adjustment of 250,000 jobs for May and June, resulting in negative job growth for June for the first time since December 2020 [3][5] - The annual revision in September indicated a downward adjustment of 910,000 jobs for March 2023, suggesting that the slowdown in the labor market began earlier than anticipated [5] Labor Supply Dynamics - The impact of immigration on labor supply is diminishing, with a new normal of low encounters and deportations for border immigration enforcement [12] - The retirement wave's influence is also decreasing, with a trend towards delayed retirement among the 55 to 64 age group, maintaining a labor participation rate above 66% [14] New Labor Force - The millennial generation, born between 1997 and 2007, is entering the labor market in large numbers, contributing to a stable growth in domestic labor supply [17] - The annual influx of new labor is estimated at 2.9 to 3 million, compensating for the decline in immigrant labor [17] Employment Balance - To maintain the current unemployment rate, a monthly job growth of 150,000 to 180,000 is required, but the average monthly job growth over the past year has been only 120,000, indicating a warning signal for the labor market [19] Policy Considerations - The Federal Reserve faces a challenging policy decision, balancing inflation risks with the rising risk of employment market slowdown [21] - The outcome of the September meeting will be crucial in determining the Fed's tolerance for rising unemployment and potential shifts towards a more dovish interest rate policy [23]

Core Viewpoint - The upcoming U.S. non-farm payroll report for August is expected to reveal further signs of a cooling labor market, with a median forecast of 75,000 new jobs added, compared to 73,000 in July, amidst various economic indicators showing weakness [1][2]. Labor Market Trends - The U.S. labor market is showing signs of slowing down, with July's non-farm payroll growth at 73,000, below the expected 110,000, and significant downward revisions of 258,000 for May and June combined [2][3]. - The Job Openings and Labor Turnover Survey (JOLTS) reported a decrease of 176,000 job openings to 7.181 million, the lowest since September of the previous year [2]. - The ADP employment report indicated an increase of only 54,000 jobs in the private sector, significantly below the market expectation of 68,000 [2][3]. Economic Implications - Analysts suggest that if the August non-farm payroll data falls short of expectations, it could heighten concerns about "stagflation" risks in the U.S. economy, leading to increased market speculation about potential interest rate cuts by the Federal Reserve [1][2]. - The probability of a 25 basis point rate cut by the Federal Reserve in September has risen to 99.4%, with expectations for a 50 basis point cut if the non-farm payroll number is below 40,000 and the unemployment rate reaches or exceeds 4.4% [5][6]. Market Reactions - Market reactions to the non-farm payroll data are anticipated to be significant, with potential impacts on the U.S. dollar and gold prices depending on whether the data meets or falls short of expectations [8]. - Historical data shows that gold and crude oil prices have a 42% probability of rising following the release of non-farm payroll data, while the Nasdaq 100 index has a 58% probability of increasing [9].

Core Viewpoint - The article discusses the evolving economic landscape in the U.S., highlighting a potential shift towards a "fiscal dominance, monetary coordination" policy model, driven by rising inflation and increasing fiscal deficits, despite the market's expectations for interest rate cuts by the Federal Reserve [3][20][24]. Group 1: Economic Recovery and Inflation - The U.S. economy is experiencing a bumpy recovery, with consumer and business confidence gradually improving as policy uncertainties decrease [5][9]. - Inflation is expected to trend upwards towards the end of the year, primarily due to a "wage-inflation" spiral and tariff impacts, which may challenge traditional monetary policy approaches [16][18]. - The labor market is showing signs of recovery, with job vacancies increasing and wage growth potentially on the rise, indicating a solid foundation for consumer spending [9][12][16]. Group 2: Fiscal Dominance and Monetary Coordination - The article outlines a new policy model characterized by fiscal dominance, where fiscal policy increasingly influences monetary policy decisions, particularly in light of persistent fiscal deficits [20][24]. - The federal deficit for the current fiscal year reached $1.63 trillion by July, with projections suggesting it could rise to $1.92 trillion for the full year, indicating a significant fiscal burden [20][21]. - The article suggests that the current administration's pressure on the Federal Reserve to lower interest rates is a strategic move to reduce financing costs for both the government and private sectors, especially ahead of upcoming elections [26][29]. Group 3: Bond Market Dynamics - The article anticipates a significant increase in U.S. Treasury bond issuance, with projections of $1 trillion in net issuance for Q3 and $590 billion for Q4, primarily in long-term bonds [33][34]. - The demand for bonds is expected to be driven mainly by households, money market funds, and foreign investors, although recent trends show a decrease in holdings by money market funds [37][41]. - The article warns that if the Federal Reserve cuts rates while inflation rises, it could lead to higher long-term interest rates, with projections suggesting the 10-year yield could reach approximately 4.8% by year-end [4][45].

Group 1: Report Industry Investment Rating - There is no specific industry investment rating provided for this report [7] Group 2: Core Viewpoints of the Report - In the June 2025 meeting, the Fed unanimously agreed to keep the policy rate unchanged at 4.25 - 4.5%. The meeting statement emphasized that the uncertainty of the economic outlook has decreased but remains high. The Fed maintained its forecast of two rate cuts this year, but Powell lacked confidence in this rate forecast due to high uncertainty [3] - The Fed continued to raise inflation expectations and lower growth expectations in the SEP economic forecast. It raised the PCE and core PCE growth rate expectations for the end of 2025 to 3% and 3.1% respectively, increased the unemployment rate forecast to 4.5%, and lowered the real GDP growth rate forecast to 1.4%. The Fed maintained its interest rate forecast, expecting the year - end policy rate to be 3.9%, implying two rate cuts this year [3] - At the press conference, Powell maintained a wait - and - see stance, believing that inflation pressure may still emerge in summer. After the Fed's press conference, U.S. Treasury yields and the U.S. dollar index rose, and the market priced in a more cautious Fed monetary policy stance [3] - In terms of strategy, the next 2 - 3 months are an important observation window. If inflation does not rise significantly in the next 2 - 3 months, the unemployment rate may rise and the market may price in a higher probability of Fed rate cuts, increasing bond market opportunities from September to the fourth quarter. If inflation rises significantly in the third quarter, the unemployment rate may face less upward pressure, the probability of a wage - inflation spiral increases, and interest rates may remain high or even rise further. The U.S. dollar index may be supported by high interest rate differentials this year [3] Group 3: Summary by Related Content 1. Fed Meeting Decisions - The Fed kept the policy rate at 4.25 - 4.5% in the June 2025 meeting and maintained the forecast of two rate cuts this year [3] 2. SEP Economic Forecast Changes - The Fed raised the PCE and core PCE growth rate expectations for the end of 2025 from 2.7% and 2.8% to 3% and 3.1% respectively, increased the unemployment rate forecast from 4.4% to 4.5%, and lowered the real GDP growth rate forecast from 1.7% to 1.4% [3] 3. Powell's Press Conference Stance - Due to high uncertainty, no one has much confidence in the submitted future interest rate path forecasts. Powell emphasized the need to see more actual data and that the Fed needs to maintain high interest rates to suppress inflation. He also mentioned that inflation pressure may appear in summer [3][4] 4. Market Reactions - After the Fed's press conference, U.S. Treasury yields rose slightly, the U.S. dollar index was supported, and the U.S. stock market was under pressure [3][6] 5. Investment Strategy Suggestions - The next 2 - 3 months are a window to observe inflation risks and consumer confidence. Different inflation trends in this period will lead to different market situations and investment opportunities, especially in the bond market and the U.S. dollar index [3]

Group 1 - The core viewpoint is that despite the upcoming CPI data release, the U.S. stock market may continue to rise, contrasting sharply with the pessimistic atmosphere observed during the market's drop to a 52-week low on April 8 [1] - The current logic shift is attributed to the delayed impact of tariffs, with businesses planning to pass on tariff costs by August, potentially leading to concentrated inflation pressure in Q3 [1] - Derivative traders are betting that the core CPI monthly rate will rise from 0.2% in April to 0.4% in August, before falling back below 0.2% by year-end, although these figures may not fully capture the risks of a wage-inflation spiral or economic recession [1] Group 2 - Barclays analysts noted that signs of stagflation have "quietly crept" into the data, with the upcoming inflation report possibly showing "concrete evidence of tariff-induced price increases" [2] - Gang Hu's predictions regarding inflation have been validated multiple times, and he now views tariffs as a double-edged sword that could either trigger a recession or compel the Federal Reserve to maintain interest rates between 4.25% and 4.5%, leading to a highly bifurcated economic outlook [2] - The significant market volatility this year reflects this uncertainty, with the S&P 500 and Nasdaq experiencing both record highs and lows within a short timeframe, indicating that the market may remain stable even amid uncertainty [2]

Core Viewpoint - The upcoming US May non-farm payroll report is anticipated to reveal significant cooling in the labor market, as indicated by a series of concerning leading indicators, particularly the disappointing ADP employment data [1][3]. Employment Data - The ADP report for May showed only 37,000 new jobs added, far below the expected 114,000, marking the lowest figure since March 2023 and the largest deviation from expectations in nearly three years [1][3]. - Job losses were noted in the goods-producing sector, with a decrease of 2,000 positions, while the service sector saw a modest increase of 36,000 jobs, primarily driven by leisure and hospitality (+38,000) and finance (+20,000) [3]. - Small businesses (fewer than 50 employees) were particularly affected, losing 13,000 jobs, reflecting the direct impact of macroeconomic policy uncertainty on these vulnerable entities [3]. Economic Indicators - Initial jobless claims rose to 247,000, exceeding expectations and reaching an eight-month high, with the four-week moving average also at its highest since November 2021, suggesting prolonged unemployment durations [4]. - The ISM non-manufacturing PMI unexpectedly fell to 49.9 in May, indicating contraction in business activity for the first time since mid-2022, attributed to policy uncertainties affecting order delays [4]. Policy Uncertainty - Current policy uncertainties, especially regarding tariffs, are seen as a core factor contributing to the unclear economic outlook, with potential cost increases looming if negotiations fail [5]. - The upcoming non-farm payroll report is crucial for understanding structural changes in employment, particularly in the goods-producing sector, small businesses, and temporary jobs [5]. Market Reactions - Market consensus for new non-farm jobs has dropped to 130,000 from a previous 177,000, with some institutions predicting as low as 125,000 [7]. - The unemployment rate is expected to remain at 4.2%, but a rise to 4.3% or higher could signal recession risks [7]. - Average hourly wage growth is projected to slightly increase to 0.3%, raising concerns about a potential wage-inflation spiral due to high labor costs and declining productivity [7]. Short-term Volatility - The release of employment data is likely to cause significant volatility in stock, bond, and currency markets, similar to the reactions following the ADP data release [8]. - Current interest rate futures reflect expectations of at least two rate cuts by the Federal Reserve this year, with increased bets on a September rate cut if unemployment rises significantly [8].