Richmond Fed President Thomas Barkin stressed the need to pay attention to changes in the unemployment rate. Slower immigration will also be considered in economic evaluations. As the next Federal meeting approaches, key insights will emerge regarding jobs, inflation, and trade policy. Barkin pointed out that while consumer demand remains steady, there is a noticeable trend of shoppers looking for lower prices.

Cautious Corporate Investment

Business contacts report a careful approach to investment, choosing to wait for more clarity on trade policy. With slowing US immigration, the non-farm payrolls may stabilize around 80,000 to 100,000. This section highlights some of the current pressures affecting monetary expectations. Barkin clarified that the Fed is closely monitoring unemployment data—not just the overall numbers, but the factors behind them. Slower immigration is seen as a long-term limit on workforce growth, which may help explain why job gains aren’t as high as during the post-Covid surge. With fewer workers entering the country, sustaining monthly job increases above 100,000 could be challenging without driving up wages. Consumer spending remains steady, but Barkin noted a key difference. Households are not cutting back on overall spending, yet they are increasingly focused on finding better prices. This shift could mean budget constraints or simply an expectation for better value. As a result, retailers and companies are adjusting their stock strategies and profit margins. On the corporate front, the reluctance to invest indicates that companies are absorbing macroeconomic uncertainties. Executives are delaying decisions, not because they lack the funds, but because they seek clarity on future trade policies. Hiring has also slowed, as companies evaluate whether current demand can hold through the second half of the year.

Shifting Market Sentiments

From our perspective, this creates an environment where interpreting stability is more important than making bold predictions. Job numbers below 120,000 should not drastically change expectations as long as average hourly earnings remain stable. For yields to increase, a significant change in inflation measures would be needed—not just fluctuations in monthly CPI, but consistent trends in core services. Given the recent shift in sentiment, those trading futures and interest rate options should keep an eye on leading indicators. There’s current focus on energy-adjusted consumption figures and their connection to regional payroll data. If price-sensitive consumption continues without a major drop in business investment, the markets may reevaluate how the Fed perceives progress toward its inflation goal. It’s also important to track survey-based PMIs, especially concerning input costs versus output prices. We’re noticing a divergence between reported activity levels and price indexes. If this continues, it could influence policymakers’ views on underlying inflation pressures. As we prepare for a period of forecast updates and comments from other Fed members, expect revisions to rate path expectations centered around full employment assumptions. The 80,000–100,000 job range mentioned before the next decision suggests that any changes may not reflect the full story, unless productivity data surprises. Keep an eye on revisions—they have been particularly impactful lately, especially in the services sector. In summary, the market is trying to connect stable demand, cautious hiring, and slow trade progress to form a clearer view of rates. We’ll closely monitor the behavior of the yield curve around the 2-year mark, especially concerning inflation swaps and the breakeven curve. Maintain balanced risk. If inflation expectations start to ease while the job market stays strong, it might give policymakers more freedom to wait without causing volatility. However, any unexpected rise in core inflation could quickly push rate expectations forward. Stay forward-looking, but remain cautiously anchored. Create your live VT Markets account and start trading now.

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