• EY-Parthenon expects the Federal Reserve to keep interest rates unchanged through year-end, even after Friday's jobs report.
  • Wall Street anticipates July payrolls to rise by 83,000, but EY views the labor market as stable and unlikely to shift the Fed's focus.
  • Only a meaningful reacceleration in hiring or broader, more persistent inflation would justify further rate hikes, according to EY.

A Steady Hand

As investors brace for the upcoming payrolls data, EY-Parthenon is signaling that the Federal Reserve is likely to keep its benchmark rate unchanged for the rest of the year. The firm's stance comes despite expectations that Friday's jobs report will show a modest gain of 83,000 positions. EY argues that the labor market remains resilient, and such a print would not be enough to alter the Fed's cautious approach.

"The labor market is stable, and we don't see a significant shift in the Fed's focus," said an EY economist. "Unless we see a meaningful reacceleration in hiring or broader, more persistent inflation, the Fed will likely hold steady through year-end."

Inflation and Hiring: The Key Risks

EY emphasizes that the primary risks to their forecast are a pickup in inflation or a sudden surge in employment. If payrolls come in much hotter than expected, it could reignite concerns about inflation and prompt the Fed to consider further hikes. Conversely, a weaker report would reinforce the case for a prolonged pause.

Market participants have been pricing in various scenarios, with some traders betting on cuts later in the year if inflation cools further. However, EY's view contrasts with those who anticipate potential moves if economic conditions change dramatically.

A Contrast with Other Forecasts

While some analysts have floated the possibility of additional tightening or even cuts, EY's projection of a steady policy through December stands out. The firm's confidence is rooted in the belief that inflation persistence and hiring momentum are the key variables to watch, and as of now, neither is signaling a need for action.

As the jobs report approaches, all eyes will be on the numbers. But for EY, the outcome is unlikely to sway the Fed from its current path.