US Job Openings Hit 3½-Year Low, Raising Fed Rate Cut Expectations

US job openings fell to a 3½-year low in July, signaling a softening labor market. With the decline in job openings and mixed signals from other labor market indicators, the Federal Reserve may consider lowering interest rates at their upcoming meeting. This development, in addition to weakening economic data and increasing market expectations, suggests a potential shift in monetary policy to balance inflation control and economic support.

US job openings dropped to their lowest point since April 2021, reaching 7.67 million, according to the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS). This represents a decline of 237,000 from June and falls short of economists’ expectations of 8.1 million. The ratio of job openings to available workers also fell to under 1.1, indicating a weakening labor market. Layoffs increased by 202,000 to 1.76 million, while hires rose by 273,000, reflecting mixed signals about labor market conditions.
This data could prompt the Federal Reserve to contemplate lowering interest rates at their mid-September policy meeting. While some sectors, such as professional and business services, saw an uptick in job openings, others—including private education, health services, and government—saw declines. Despite worries about a slowing economy, experts indicate that the labor market is not declining rapidly. The report precedes the release of the August nonfarm payrolls, which is projected to show modest job growth.

Atlanta Fed President Raphael Bostic indicated his willingness to begin lowering interest rates, even though inflation remains above the central bank’s 2% target. Previously known for his hawkish stance on fighting inflation, Bostic has shifted his focus to the weakening labor market. He stressed the importance of taking action before inflation reaches 2% to prevent disruptions in the labor market. With inflation at 2.5% in July, Bostic’s remarks align with market expectations of a potential rate cut during the Federal Reserve’s September 17-18 meeting. As a voting member of the FOMC, his stance strengthens the likelihood of policy easing amid signs of economic slowdown and moderating inflation.

The US dollar index (DXY) is down by 0.8% compared to the previous week, driven by a widening US trade deficit, lower Treasury yields, and a sharper-than-expected decline in July’s JOLTS job openings, which signaled a weaker labor market. The dovish Fed Beige Book and increased expectations for a Fed rate cut further pressured the dollar. Meanwhile, EURUSD rose due to dollar weakness, though weak Eurozone producer prices and dovish comments from ECB officials tempered it. USDJPY fell by 2.6%, supported by safe-haven demand for the yen amid a plunge in Japan’s Nikkei Stock Index.

If nonfarm payrolls show a positive result in September 2024, it would likely reduce the probability of a 50 basis points Federal Reserve rate cut. Strong job growth suggests a healthy economy, which could potentially contribute to inflation. On the contrary, if nonfarm payrolls are negative, the chance of a rate cut with 50 bps on the table increases. Weak job data indicates an economic slowdown, leading the Fed to lower rates to encourage growth. The Fed’s decision depends on balancing inflation control and providing economic support.

The US Dollar Index has seen five consecutive weeks of lower lows, driven by expectations of a Fed rate cut in September due to a slowing economy and weakening labor data. If the index decisively breaks below the lower band at 100.617, which has been holding since 2023, it could target three potential support levels. The first support level is at 99.578, a daily low set on July 23. If bearish pressure continues, the US Dollar Index might fall to 98.196. The third support level is estimated at 96.350. Traders are closely monitoring the index’s performance around these key support levels, as a significant breach could indicate a prolonged bearish trend for the dollar.

In conclusion, the recent drop in US job openings and mixed labor market signals increase the likelihood of a Federal Reserve interest rate cut in September. As the labor market softens and economic data weakens, the Fed faces pressure to balance inflation control with economic support. The upcoming nonfarm payroll report will be crucial in shaping the Fed’s policy decisions in the near term.