Key Takeaways:
Kevin Hassett's pre-announcement of a strong June payrolls report carries a twist that complicates the Fed's rate path.
White House economic adviser Kevin Hassett said Monday that June nonfarm payrolls due Thursday will show "another strong number," while arguing that AI-driven productivity gains have a deflationary effect that weakens the case for rate hikes.
"All the signs we're seeing point to another strong employment report," Hassett, director of the National Economic Council, said in a CNBC interview. "The surge in AI productivity is having a deflationary effect, so the argument for raising rates right now is not strong."
Economists surveyed by Bloomberg expect payrolls to have risen 115,000 in June, with the unemployment rate holding at 4.3%. The May report showed 172,000 jobs added, above the upwardly revised 179,000 in April. The three-month average of roughly 170,000 remains above the Atlanta Fed's estimated breakeven rate of about 100,000. Markets currently price a 30% probability of a 7-basis-point rate hike at the July Federal Open Market Committee meeting, with a full 25-bp increase almost fully priced for October, according to OIS data.
Hassett's comments inject a new variable into the rate debate: if AI-driven productivity is indeed suppressing inflation, the Fed could face a scenario where a strong labor market no longer automatically triggers tightening. That would have significant implications for rate-sensitive sectors — the Nasdaq 100 has already fallen 4.24% this week as tech stocks sold off on AI capex concerns, while the Russell 2000 has gained 21.28% year-to-date, outperforming the tech-heavy index by roughly 6 percentage points.
The conflicting signals have created an unusual cross-asset dynamic. The dollar index held at 101.36 on Monday, on track for a 2.5% monthly gain — its largest since July 2025 — as safe-haven demand from US-Iran tensions in the Strait of Hormuz reinforced the greenback. Gold slipped 0.6% to $4,062.89 an ounce, heading for a fourth consecutive monthly decline of 10.4%, as expectations of higher rates weighed on the non-yielding metal. West Texas Intermediate crude rose 1.2% to $70.05 a barrel after renewed strikes disrupted energy shipments through the Strait of Hormuz.
The last time a White House official pre-announced a strong jobs report was in February 2025, when then-NEC Director Lael Brainard flagged a robust January print. The actual number came in at 353,000 — more than double the consensus estimate — and the S&P 500 fell 1.6% over the following week as rate-hike expectations repriced. A repeat of that pattern would test Hassett's thesis that AI deflation can insulate markets from tightening fears.
Thursday's release will be the first major data point since Fed Chair Kevin Warsh's hawkish June 17 FOMC meeting, where the committee signaled a higher-for-longer rate path. A print above 150,000 would likely reinforce the market's October rate-hike pricing, while a number below 100,000 could ease pressure and give credence to Hassett's AI-deflation argument. The next FOMC decision is scheduled for July 29.
This article is for informational purposes only and does not constitute investment advice.
