Strong Non-Farm Payrolls Ahead? Expect Aggressive Fed Rate Hikes, Macro Wiz Says

Investors are eagerly anticipating the release of the non-farm payrolls, unemployment rate and salary growth figures this Friday, which are expected to be the key economic readings of the week.

Rate-sensitive assets are expected to exhibit heightened volatility in response to any unexpected outcomes.

The data serves as the final key indicator before the June 14 release of inflation data and the concurrent Federal Open Market Committee meeting.

The Consensus: According to market expectations, the upcoming non-farm payrolls report for May is projected to show an increase of 190,000 jobs, down from the 253,000 jobs added in April. The unemployment rate is anticipated to tick up slightly from 3.4% to 3.5%, while average hourly earnings are forecasted to rise by 0.3% on a monthly basis, following a 0.5% increase in the previous month.

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Arora Report CEO Nigam Arora provided insights on the U.S. job market and made some market predictions in a chat with Benzinga:

• There will be a 50% likelihood of non-farm payrolls in May exceeding expectations, taking into account the ongoing momentum.
• A 30% chance that the figures will fall within the consensus range.
• A 20% chance of coming in below expectations.
• Inflation is becoming entrenched in the service side, Arora says.
• In order for core inflation (excluding shelter) to decelerate and align with the Fed's 2% target, the unemployment rate would need to increase to at least 4%.
• Arora doubts the reliability of the methodology used for calculating non-farm payrolls.
• Despite being a lagging indicator that reflects past data, the market places significant emphasis on it, considering the NFPs as the "mother of all economic reports" even more important than the inflation rate, he explained.

"We fully agree with the recent rise in market-implied probabilities of Fed rate hikes in June. In fact, we anticipate two or three rate hikes in the upcoming meetings, and we do not foresee any rate cuts this year," Arora added. "I'm very underweight bonds."

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