According to a macroeconomic research paper published by China Galaxy Securities, even though the stronger-than-expected U.S. nonfarm payrolls figures for May raised concerns about interest rate hikes in the markets, this does not mean the Fed will raise rates in 2026.
The study said the May labor market numbers showed the employment outlook remains stronger than market expectations. Therefore, it was stressed that the Fed does not currently have sufficient grounds or data support for a rate cut in the short term. Nevertheless, it was noted that the overall structure of the labor market does not yet signal overheating, nor are there risks of a wage-inflation spiral. For this reason, it was suggested that investors should not overprice the likelihood of a rate hike this year.
Analysts stated that the strong monfarm payrolls released since March has pushed up the Fed’s threshold for rate cuts but has not caused pressure for rate hikes. While the report noted that fears of rate hikes have become the central theme in markets recently, China Galaxy Securities believes this risk is being exaggerated by investors.
However, the firm stated that short-term and lagging economic data are not sufficient to entirely refute rate hike expectations, and therefore the Fed will be forced to maintain its “data-dependent” approach in the current process.
In addition, the report pointed out that there is a risk of a market correction following the excessive valuations that have formed around artificial intelligence stocks. Even though a recovery in liquidity expectations is projected for the year, it was noted that this will take time and that market volatility may persist in the short term.
