Federal Reserve Rate Cut Opens the Way: Labor Market Data Intertwined with Political Pressure

Recently, the Federal Reserve has prepared for its first rate cut of the year after pausing cuts since last December. The latest data shows that the CPI rose 0.4% month-on-month, which was higher than expected, but there is still a gap from the inflation target. Currently, the focus has shifted more to the labor market, with initial claims for unemployment benefits reaching 263,000 last week, a new high since 2021, which has led the market to widely expect a rate cut next week, and possibly two more cuts this year.

It is worth noting that the sluggish growth of employment in the United States is primarily due to insufficient labor growth, rather than inadequate demand stimulation. Although unemployment claims have surged, this type of weekly data is prone to fluctuations, and half of this increase comes from Texas, which may be influenced by one-off factors. Before tariffs are fully passed on to consumer prices, inflation remains high, and the Federal Reserve may slow its actions after cutting interest rates. The political pressure from the Trump administration to lower rates also complicates matters, despite Trump's attempts to dismiss Lisa Cook, the court has ruled that she can temporarily remain on the Federal Reserve Board.

In contrast, the European Central Bank confirmed its apparent stance of no longer lowering interest rates during this week's meeting. Although the latest economic forecasts show inflation rates below 2% in 2026 and 2027, Lagarde downplayed this point, believing that the data is close to 2% and temporarily influenced by the strengthening euro. In France, the Prime Minister failed in the confidence vote as expected, and the President appointed close ally Lecornu as the head of the new government, but his ability to improve public finances is in doubt.

In the coming week, in addition to the Federal Reserve meeting, the decisions of the Bank of England and the Bank of Japan are also worth paying attention to. The Bank of England is expected to keep interest rates unchanged, but there is significant uncertainty about the future path. The Bank of Japan is likewise expected to remain on hold, but political uncertainty may affect the outlook. China will release important economic indicators such as retail sales and the real estate market on Monday.

In terms of market volatility, gold and silver recently reached new highs before experiencing a significant pullback, while Bitcoin plummeted nearly 10% due to Trump's threat to impose additional tariffs on China. The strengthened export controls on Chinese rare earths have also impacted the semiconductor supply chain. These factors together shape the current complex global financial environment.