Huatai Securities: Fed Expected to Pause Rate Cuts from January to May, Then Cut 1-2 Times After New Chair Takes Office

Odaily Huatai Securities research report stated that U.S. non-farm payrolls increased by 50,000 in December, below the Bloomberg consensus estimate of 70,000, with cumulative downward revisions of 76,000 for October-November. Although the unemployment rate declined, the significant downward revisions for the previous two months brought the three-month average of private sector non-farm payroll additions down to a low of 29,000, and the structure became further "imbalanced." Looking ahead, we maintain our view that the job market will gradually improve going forward, while paying attention to the "temperature gap" between economic growth and employment; we expect the Fed to pause rate cuts from January to May, and then cut rates 1-2 times after the new Fed Chair takes office. December's non-farm payroll additions fell short of expectations and were concentrated in a few industries: the employment diffusion index showed a decline in December compared to November. Considering that recent initial jobless claims have mostly been better than expected, layoff numbers have declined, and the leading indicator NFIB small business hiring plans have continued to improve, we still expect U.S. non-farm payroll additions to pick up subsequently. We are monitoring the "temperature gap" between U.S. economic growth and the job market. From the Fed's perspective, although the employment data is weak, it has not continued to deteriorate. It is expected that the Fed will pause rate cuts at the January meeting, emphasizing the need to observe subsequent data before making decisions. Therefore, we expect the Fed to pause rate cuts from January to May, and then cut rates 1-2 times after the new Fed Chair takes office. (Jin10)