The previous value of US non-farm payrolls was significantly revised downward, is the Federal Reserve opening the door to a drastic rate cut?

The U.S. economy created jobs in August, with a slight rebound but below expectations. While the data may not look too bad at first glance, the significant reduction in job additions in July and June indicates that the labor market cooled off earlier than it seemed.

Seasonally adjusted non-farm employment in the U.S. in August increased by 142,000, below the expected 160,000, marking the largest increase since June this year. The U.S. unemployment rate in August fell as expected from 4.3% to 4.2%, hitting a new low since June this year, the first decline after four consecutive months of increase. The U.S. average hourly wage growth rate in August recorded 3.8%, higher than the expected 3.7% and the previous value of 3.6%.

After the release of the U.S. August employment data, spot gold first fell and then rose, with a short-term volatility of up to $15, approaching the $2530 level. Spot silver rose to $29 per ounce. U.S. Treasury yields plunged, with the 2-year Treasury yield falling to 3.642%, the lowest level since May 2023; the 10-year Treasury yield fell to 3.657%, the lowest level since June 2023. The U.S. dollar index briefly fell by nearly 60 points. Non-U.S. currencies rose across the board, with the euro rising by 70 points against the U.S. dollar, the pound rising by 90 points against the U.S. dollar, the dollar falling below 142 against the yen, with an intraday decline of 1.02%. The dollar hit a new low against the Swiss franc this year.

Traders have increased bets on the Fed cutting rates by 50 basis points in September. Interest rate futures traders expect a 55% probability of the Fed cutting rates by 50 basis points in September, while the probability of a 25 basis point cut is 45%.

It is worth noting that the previous value of U.S. non-farm employment growth has been significantly revised down. The U.S. Bureau of Labor Statistics stated that non-farm job additions in June were revised down from 179,000 to 118,000; and in July, non-farm job additions were revised down from 114,000 to 89,000. After the revisions, the total job additions in June and July were 86,000 lower than the unrevised figures.

In terms of unemployment, the unemployment rate in August was 4.2%, with 7.1 million unemployed. These figures are higher than a year ago when the unemployment rate was 3.8% and the number of unemployed was 6.3 million.

Analyst Chris Anstey stated that ultimately, this report indicates that the job market will further cool down, rather than "bottoming out."

Analyst Enda Curran noted that it is clear that the downward revision of 86,000 job additions in June and July combined was one of the biggest takeaways from today's data, as it adds to the view that the labor market is weaker than what the overall data implies. It is not difficult to imagine another revision in August. Despite this, the Wall Street Journal believes that the latest non-farm payroll report has not definitively eliminated the uncertainty of whether Federal Reserve officials will cut interest rates by a more traditional 25 basis points or by a larger 50 basis points.

"Federal Reserve megaphone" Nick Timiraos also stated that he originally thought the non-farm payroll report could provide a clear signal about the magnitude of the Fed's first rate cut, whether it's 25 basis points or 50 basis points, the market pricing would immediately rise to 90%. However, this non-farm payroll report did not address this issue well, and currently the market's pricing of a 25 or 50 basis point rate cut is "half-open". Overall non-farm data has not deteriorated enough to shift the benchmark expectation to a 50 basis point rate cut, but considering the revised data, it is not convincing enough to completely dispel speculation about a larger rate cut.

Jeffrey Rosenberg, a senior portfolio manager at BlackRock, is concerned that if the Fed's easing this month is 50 basis points, it may imply concerns about the economy rather than reassuring people that policymakers are taking timely action to avoid an economic downturn.

Analyst Kristine Aquino pointed out that while employment data cannot fully confirm a 50 basis point rate cut by the Fed this month, it is expected that by the end of the year, the Fed's rate cut will significantly increase. Traders currently expect that by then, the rate cut will exceed 111 basis points. This means that if the Fed does not cut rates significantly this month, it is expected to act in November or December.

Following the release of the latest non-farm payroll data, New York Fed President Williams made a statement, but did not comment on the specific rate cut magnitude.

Williams stated that given the progress made in reducing inflation and cooling the job market, it is appropriate for the Fed to cut rates now. The Fed has made "significant progress" in achieving its dual goals of maintaining price stability and full employment, and the risks of achieving these two goals have entered a "balanced" state. He is now more confident that inflation is moving steadily towards the central bank's 2% target, and added that the labor market is unlikely to be a source of future price pressures.

While Williams did not disclose the magnitude of the Fed's first rate cut, he indicated that officials could shift policy towards neutrality. Over time, this will depend on the evolution of data, prospects, and risks to achieving the inflation target