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Wall Street Preparing For Revision

Wall Street Preparing For Revision

Today, we’re diving into some significant economic news that could shake up Wall Street and Main Street alike. The federal government is on the verge of announcing that the U.S. economy may have created up to a million fewer jobs than previously reported over the past year. That’s right—what was once seen as a robust job market might have been overstated, and this revelation could have major implications for the Federal Reserve’s strategy moving forward.

So, what exactly is happening? According to predictions from big names like Goldman Sachs, Wells Fargo, and JPMorgan Chase, the Bureau of Labor Statistics (BLS) is expected to announce a major downward revision of job growth numbers on Wednesday.

Estimates suggest that the economy might have added between 600,000 and 1 million fewer jobs than initially thought during the 12-month period ending in March. To put that in perspective, a revision of more than 501,000 would be the largest adjustment we’ve seen in 15 years.

Why does this matter? Well, the job market has been one of the key indicators the Federal Reserve has pointed to as a reason for keeping interest rates high. The idea was to cool down inflation without causing a recession, using the strong labor market as a cushion.

If the job growth numbers are revised downward significantly, it could mean that the Fed has been overestimating the strength of the economy. This might lead to criticism that the Fed waited too long to start cutting interest rates, which many believe are necessary to avoid a more severe economic downturn.

Now, all eyes are on Fed Chair Jerome Powell, who is set to speak at the Kansas City Fed’s Jackson Hole economic symposium on Friday. Traders and analysts will be hanging on his every word, looking for any clues about the Fed’s next moves. The speculation is already running high, with some experts predicting that the Fed might cut rates by as much as 50 basis points in September if the job market is indeed weaker than previously believed.

This upcoming revision follows some already shaky news from the job market. The July jobs report came in weaker than expected, showing a significant slowdown in hiring and a rise in unemployment for the fourth consecutive month.

While the stock market initially took a hit, it has since rebounded, but that doesn’t mean the concerns have gone away. In fact, traders are increasingly pricing in the possibility of rate cuts, with a 25-basis-point cut in September seen as having a 75% probability according to the CME Group’s FedWatch Tool.

The broader implications of a weaker job market are clear: if fewer jobs were created than previously thought, it could signal that the economy is closer to a downturn than many had hoped. The concept of a “soft landing”—where inflation is brought under control without triggering a recession—might be more challenging to achieve than the Fed anticipated.

Written by Mark Stevens - August 21, 2024