Goldman: Fed Uncertainty Still High Despite Broadly In-Line Jobs Report

Goldman Sachs note that "the June employment report offered mixed signals on the U.S. labour market but appeared broadly consistent with consensus expectations. In light of uncertainty around the effect of expiring unemployment insurance benefits and possible seasonal adjustment headwinds in the payroll statistics, the report is unlikely to resolve broader uncertainty around the economic outlook or the trajectory for Fed policy. However, the chances of a September QE tapering announcement by the FOMC already appeared below 50% prior to the report, and the lack of a meaningful upside surprise should narrow those probabilities further. The slight rally in end-2022 Fed funds futures and USD decline on Friday likely reflected some pricing out of early taper risks. That being said, we would be hesitant to extrapolate any change in Fed expectations too far. There are still a number of open questions around the Fed's balance sheet, including the taper announcement timeline, the duration of the tapering process, and whether the committee will rule out rate hikes while the balance sheet is still growing. Moreover, we will learn the Fed's 2024 funds rate projections for the first time at the September FOMC meeting, and anything more than two additional rate hikes that year would put the "dots" above market forwards (currently priced ~1.20% for end-24). Minutes from the June 15-16 FOMC meeting, released on Wednesday, may help clarify Fed officials' views on the exit path. While maintaining our forecasts for broad USD depreciation over the medium-term, for now we remain broadly neutral on USD vs. G10, while sticking with recommended USD shorts in "deep value" EMs (BRL and RUB)."