We anticipated 6 interest rate cuts (142 basis points) by the end of 2024. However, based on the current data, we now expect only 2 cuts (48 basis points) by the end of the year.

Observing the PCE and CPI, as shown in the graph, it’s evident that both measures have shifted from a clear downward trend to a more sideways movement.

The next important data is NFP which shows newly added jobs (except jobs in farming, private households, and non-profits).

The non-farm payroll (NFP) has shown resilience over the past year and a half, maintaining levels similar to those seen before the pandemic. If NFP readings were to decrease, it would indicate weakness in the labor market, potentially increasing pressure on the Fed to cut interest rates.

At this moment, it is pertinent to discuss US migration policies. It is widely accepted that 1 in 6 workers in the US are immigrants and that immigrants are responsible for creating about 1 in 4 new businesses.

In recent years, the United States has experienced an increase in immigration from the south. In 2023, 3.2 million immigrants were either arrested or denied entry at US borders due to illegal entry, marking the highest number since at least 1985. Net immigration in the US in 2023 was around 3.5 million, which is approximately 2 million higher than previous projections by the Congressional Budget Office.

Immigrants alleviate labor market pressure and suppress wage growth. Some projections suggest immigrants contributed approximately 100k to monthly NFP change over the last 18 months, lowering core PCE inflation by 25-50 bps.

In the latest report, there were concerning developments in the labor market. The unemployment rate increased to 4.0%, up from 3.9% and 3.8% in previous readings, while the nonfarm payrolls (NFP) grew to 272k from 165k the month before. On June 12th, Powell mentioned that unexpected weakness in the labor market might require a response. He also emphasized that although unemployment is still low, it has softened a bit, which is an important statistic.

On June 5th, President Biden signed a law that allows officials to quickly and legally remove all immigrants entering the country illegally without processing their asylum requests during periods of high illegal entry. Additionally, approximately three-fourths of undocumented immigrants are classified as essential workers in the labor force.

It’s important to note that the US elections will take place this autumn, featuring a rematch between Trump and Biden. The US appears to be moving towards stricter migrant policies, so it will be interesting to see how this will impact US economic data.