As the rate hike cycle unfolds, unemployment is a crucial series to watch

The nonfarm employment change is forecast to be 325K, with the U3 unemployment rate ticking down to 3.5% (3.6%). In addition, average hourly earnings are expected to tick up to 0.4% on a monthly basis from the previous 0.3%.

The market expects a 50bps hike this month and another 50bps in July. Added to this, the odds for another 50bps in September are currently around 1.5:1. This week has also seen a slew of hawkish comments from Waller, Daly, and Brainard.


The black series is U3 unemployment, and the red series is the federal funds rate, our chosen proxy for rate hikes. The blue rectangle is the stagflationary environments of the first and second oil crises. As the fed raised rates, we marked where the rate crosses above the u3 series (first two green ellipses). Both times there is a delay before unemployment kicks up significantly.

Finally, look at the third green ellipse, which is current. As the Fed navigates the current stagflationary environment, we worry that there will be a lag before U3 kicks up again. In this regard, the U3 rate is now a crucial series to watch.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.


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