Most of the recent up tick in UR (Unemployment Rate) is due to increased immigration. And UR at 4.2% is well below historical levels of recession when UR used to be north of 5% minimum. Though the headline NFP revisions of June & July were the weak links in the Aug NFP report, current 3m average at 116k is still not a recessionary NFP no. The initial jobless claims at 4 week moving average of 230k and a falling continuous claims does not paint a recessionary picture. Even the Fed speak of Waller & Willams post the NFP data were mostly in line with gradual rate cuts and clearly stating that they do not see a recession likely. We believe most of the FOMC members might go with a gradual 25 bps cut per meeting till March'25 by which the policy rate might fall to 4% which is the upper end of market estimates of R*. After reaching this level we might see Fed finetuning rate cuts to bring it to 3.5% by end CY25. We do not see how Fed might go cutting below average long term R* market estimates of 3.25% unless economic data breaks in US economy which is not the case right now. Hence, we continue to recommend paying 1yr1yr forward at 2.82 levels. We have been recommending it to pay it from 2.90 levels. Markets can exaggerate but we continue to believe US economy is slowing and not in recession as rates markets are currently pricing in.
