Tonight, will the non-farm payrolls serve as evidence for the Federal Reserve to pause interest rate cuts?

The U.S. Bureau of Labor Statistics will release the monthly non-farm employment report on Friday, with the December non-farm employment report expected to show healthy job growth and an unchanged unemployment rate, indicating that the labor market has once again exceeded expectations for a larger slowdown. Economists expect that the number of non-farm jobs added last month may have increased by 165,000. This data would be a decrease from the 227,000 jobs added in November. These numbers will support the Fed's intention to refocus on inflation. Last year, in order to prevent rapid deterioration of the labor market, the Fed cut interest rates by a full percentage point. Following these measures, Fed Chair Powell stated that officials could afford to be cautious about further rate cuts as long as the job market remains stable. Several Fed officials confirmed on Thursday that the Fed may keep rates at the current levels for a longer period of time, only lowering them again if inflation clearly cools down. Boston Fed President Collins stated on Thursday that given the "considerable uncertainty" facing U.S. economic prospects, the pace of rate adjustments should be slowed down now. This view was echoed by Fed Governor Bauman and other regional Fed presidents. Bauman pointed out that the continued inflation risk proves that it is reasonable to slow down the pace of rate cuts. Kansas City Fed President Schmid indicated that rates may already be close to a level that neither stimulates nor slows down the economy. Like Collins, Schmid is a voting member this year. Philadelphia Fed President Harker also stated on Thursday that he is prepared to support further rate cuts in 2025, but the timing will depend on economic conditions. At the December meeting last year, Fed policymakers cut rates for the third consecutive time, reducing the benchmark rate by 25 basis points, bringing the total rate cut for the year to a full percentage point. Many Fed officials have stated that slowing down the pace of rate cuts currently is appropriate as inflation rates are still above the 2% target and the labor market is healthy. According to pricing of futures contracts, investors generally expect policymakers to keep rates steady at the meeting on January 28-29. U.S. Bank economists Shresh Mishra and Aditya Bhave stated in a report previewing data on January 6: "The pause in rate cuts in January appears to be the Fed's base case. We believe that if the labor market stops cooling gradually, the rate cut cycle may come to an end." While economists' forecasts range from 100,000 to 268,000, if the report aligns with the median estimate, it would mean that the U.S. economy added 2.1 million jobs throughout 2024. This would be lower than the 3 million added in 2023, but still higher than the 2 million created in 2019. However, beneath the surface, signs of weakness have already emerged in the job market. Monthly hiring tends to be concentrated in a few industries, and the unemployment rate is also rising slightly. Additionally, job seekers are finding it increasingly difficult to find new jobs as U.S. companies announce that hiring in 2024 will reach its lowest level in nearly a decade. Bloomberg economists Anna Wong and Estelle Ou stated in a report preview on January 9: "The December employment data may be robust - we acknowledge this as an encouraging sign of improvement in the labor market. Nevertheless, we cannot confidently conclude that the labor market is heating up again." Economists have been closely monitoring the unemployment rate, especially after early 2024 saw consecutive increases in the rate, sparking a widespread recession indicator. Forecasters expect the indicator to reach 4.2% by the end of the year, unchanged from November but higher than the 3.7% at the beginning of the year. Citi economists stated in a report on January 6: "The unemployment rate remains the most important aspect of monthly employment data. We expect the rate to rise above 4.5% in the coming months, leading to a significant adjustment in Fed rate cuts this year." The employment report consists of two surveys, one of businesses and the other of households. Friday's report will include annual revisions to the latter, providing information on statistics such as the unemployment rate and participation rate. Senior U.S. economist Andrew Husby of BNP Paribas stated in a report on January 3: "This process typically results in the smallest adjustments to the unemployment rate, and we expect it to remain unchanged this time." Next month's report will include baseline revisions to the business survey, as well as new seasonal factors that often have a greater impact on the overall job market. Initial baseline data released in August suggested that there may have been 818,000 fewer jobs added in the 12 months ending in March 2024 than initially reported, with estimates from the Philadelphia Fed indicating that the trend of weak job growth may continue into the second quarter.