Non-farm payroll data is "weak just right", has the Fed's rate hike expectation been overdone? [Cheng Tan Talks Episode 3]

Summary of Core Views for This Issue

In July 2026, the Non-Farm Payrolls were released, with only 57,000 new jobs added, far below market expectations, and the previous value was revised down by 74,000. At first glance, this seems like a weak report, yet the unemployment rate fell to 4.19%, even better than expected— not because more people found jobs, but because more people exited the labor force.

Is the job market actually improving or deteriorating? How should we interpret these "solid signals" such as the recovery of the industrial sector and the rebound in temporary services? Should we be concerned about these "soft signals," like the sharp drop in participation rate and stagnant working hours?

More subtly, Federal Reserve Chairman Kevin Walsh spoke extensively about AI enhancing productivity and lowering inflation at the ECB forum, striking a dovish tone; yet the June FOMC dot plot showed that half of the members supported rate hikes within the year, with the market at one point pricing in a 90% probability of hikes.

When these two sets of signals contradict each other, which should the market follow?

In this issue, Macro Insights【Cheng Tan】breaks down the July NFP data, clarifying the real trends of the job market and Federal Reserve policy for the second half of the year.