The Latest Employment Data is in support of Rate Cuts

July 12, 2024

The Latest Employment Data is in support of Rate Cuts

Last week’s job data release showed that the unemployment rate is rising, and payroll growth is slowing. As illustrated in the chart below, the unemployment rate has risen to 4.1%, the highest in over two years, and the number of jobs being filled has steadily declined.

As conditions in the labor market cool off, the trade-offs for the Fed are shifting from an intense focus on inflation to ensuring maximum employment. In this week’s testimony before Congress, Fed Chair Powell indicated that the labor market is “pretty much” where it was in the pre-pandemic era regarding demand-supply dynamics and that “we’ve seen that the labor market has cooled really significantly across so many measures… It’s not a source of broad inflationary pressures for the economy now.” While not setting a schedule for the first rate cut, Powell did say that the FOMC would respond if it witnessed unexpected weakening in employment or economic conditions.

On the back of the latest data, expectations have risen to a 75% probability for the first rate cut to occur at the FOMC meeting in September with a second cut expected later in the year. The financial markets’ obsession with rate cuts stems from the impact that rates have on borrowing costs and valuation for both the equity and the bond markets as well as movements in global currencies and commodities. Lower rates are seen as supportive of access to capital and higher valuations, although both are also impacted by economic growth and potentially negatively impacted if lower rates are in response to recessionary conditions.

At Pallas Capital Advisors, we will continue to monitor the drivers of interest rates and economic growth with an eye towards maintaining well diversified investment portfolios to preserve and grow capital over the long term.

Important Disclosure:

The information contained herein is for informational purposes only, is not personalized investment advice and should not be construed as a recommendation to purchase or sell any particular security, sector or strategy to any individual person or entity. The decision to review or consider the purchase or sale of any security, sector or strategy mentioned should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional. Past performance should not be considered as an indicator of future results. Investment Advice offered through Pallas Capital Advisors LLC, a registered investment advisor.

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Stephen Kylander
Senior Portfolio Manager
Pallas Capital Advisors

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The information contained herein is for informational purposes only, is not personalized investment advice and should not be construed as a recommendation to purchase or sell any particular security, sector or strategy to any individual person or entity. The decision to review or consider the purchase or sale of any security, sector or strategy mentioned should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional. Past performance should not be considered as an indicator of future results.

Investment Advice offered through Pallas Capital Advisors LLC, a registered investment advisor.

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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