Fed Balances Inflation Against Employment Weakness
The Automatic Data Processing (ADP) Research Institute is set to release its monthly report on private-sector employment in the United States on Wednesday. The October report is expected to show that the U.S. economy added 25,000 new jobs, partially offsetting the 32,000 decline recorded in September.
This month’s release carries particular weight as the ongoing government shutdown—now entering its fifth week—has delayed key labor market data such as the JOLTS Job Openings and the Nonfarm Payrolls (NFP) report. With these official indicators unavailable, the ADP report becomes a critical reference point for market participants and policymakers.
Mounting evidence of labor market deterioration was a key factor behind the Federal Reserve’s decision to cut interest rates by 25 basis points on October 29. Dovish members of the Monetary Policy Committee continue to advocate for more accommodative measures, citing persistent employment concerns.
Despite the expected rebound in October’s ADP figures, the numbers remain well below the historical average of 150,000 monthly job gains over the past 15 years. Preliminary estimates from ADP suggest an average growth of just 14,250 jobs in the four weeks ending October 11.
This subdued pace of job creation underscores the challenges facing the Federal Reserve, which must balance weak employment data against rising inflation risks. The divergence in views among policymakers was recently highlighted by the President of the United States, who emphasized the need for caution regarding further rate cuts.
The probability of another 25 basis point rate cut in December has dropped to 64%, down from over 90% last week. This shift has contributed to a notable recovery in the U.S. Dollar, with the Dollar Index (DXY) climbing nearly 1.3% and testing the psychological 100.00 level.
From a technical standpoint, analysts note that the DXY is approaching overbought territory, with resistance seen between 100.00 and 100.25. A pullback from these levels could find support near 99.55 or 98.90, while a breakout above 100.25 would open the path toward 100.55 and 101.25.
Strong ADP Report: Could ease concerns about employment, shift focus back to inflation, and reinforce the hawkish stance of the Federal Reserve—supporting further gains in the U.S. Dollar.
Weak ADP Report: Would likely increase pressure on the Fed to continue easing monetary policy, potentially weakening the U.S. Dollar.
With official labor data delayed due to the government shutdown, the ADP Employment Report will serve as a key indicator of the health of the U.S. labor market. Its outcome could significantly influence monetary policy expectations and the trajectory of the U.S. Dollar in the weeks ahead.