Analysis: The market interest rate perspective is in serious divergence from the Fed's stance, and mispricing may be brewing.

On August 8, BCA Research analyst Dhaval Joshi pointed out that the current pricing of U.S. interest rates in the market is severely diverging from the Fed's stance, and mispricing may be brewing. Trump is calling for a 3% cut in interest rates from the Fed. Given that the July employment report shows a significant slowdown in the U.S. labor market, Trump seems to have the upper hand in this "struggle" with Powell, but attention should be paid to the true reasons behind the slowdown in the labor market. Joshi stated that the weakness in the labor market usually does stem from a weakening demand for labor; however, that is not the case now. The reason is that new employment is not driven by demand for workers but rather by the number of available workers (labor supply). Worse still, cutting interest rates will exacerbate the imbalance between labor demand and supply, thereby reigniting inflation without boosting employment growth. Thus, this would be a policy error. It is essential to distinguish between data before and after revisions. Most economic data's initial release is based on incomplete information, which is a trade-off made for the sake of timeliness. Therefore, the more one hopes for timely data releases, the lower its accuracy will be. Once the data is fully revised to include a complete set of information, it will become more accurate. Thus, the data released initially is less about being "manipulated" and more about being "inaccurate" due to incomplete information. Looking at the revised and more accurate total U.S. employment data, the situation is clear and consistent: the upward trend in employment is mainly attributed to the increase in labor supply, and the recent weakness in new employment is due to a slowdown in labor supply growth, not due to a decrease in labor utilization (i.e., rising unemployment rate). All this will lead to a significant mispricing in the U.S. interest rate market.