Tonight, the non-farm payrolls and Powell will take the stage one after another! Is it adding insult to injury or providing timely help?

Tonight, the market will face a "double test": the highly anticipated non-farm payroll data is about to be released, and Federal Reserve Chairman Jerome Powell will also deliver a speech.

Economists generally expect that the March non-farm payrolls are unlikely to show a collapse in the labor market. Job growth last month is expected to slow from 151,000 in February to 140,000, with the unemployment rate remaining at 4.1%. This data will be released at 20:30 Beijing time tonight.

About three hours after the non-farm data is released, the market's focus will shift to Powell, with investors closely watching his stance on the latest tariffs from the Trump administration. If Powell maintains that inflation is "transitory," the likelihood of interest rate cuts will significantly increase; conversely, if Powell believes the impact of tariffs is long-term and inflationary pressures persist, the Federal Reserve may keep interest rates unchanged, leading to greater uncertainty in the market.

Traders have already begun to bet on interest rate cuts by the Federal Reserve. The money market now indicates a 100 basis point cut by the end of the year, equivalent to four cuts of 25 basis points each, up from about 75 basis points before the announcement of the tariff increases.

March Non-Farm Payrolls: Impact of DOGE Government Layoffs Begins to Show, but Collapse of Labor Market Unlikely

Since Trump's election, "hard data"—that is, actual economic figures—has remained stable. However, over the past three months, U.S. inflation "soft data" (indicators based on surveys and market inflation expectations) has deteriorated sharply. It remains to be seen whether the "hard data" of non-farm payrolls will bring surprises or shocks to the market tonight.

Citi published a preview report before the March non-farm payrolls, predicting that the number of new jobs in March may be only 95,000, with the unemployment rate reaching 4.2%, which would be the first clear signal of further slowdown in the labor market.

Meanwhile, economists Carl Weinberg and Mary Chen from High Frequency Economics believe that the employment report for March is unlikely to show a collapse in the labor market. However, they warn:

"This does not guarantee that the tariffs announced yesterday will not lead to a sharp rise in the unemployment rate and a decline in job positions; be cautious in April."

Currently, the market is most concerned about the impact of DOGE layoffs on employment. The market expects that there will be slight layoffs in government departments in March, estimated to be between 15,000 and 25,000. However, a larger impact is expected to manifest later this year. BNP Paribas senior economist Andrew Husby stated that the number of federal government employees is expected to decline by 125,000 this year, but this figure carries a high degree of uncertainty In the retail and healthcare sectors, the two strike events in March (Kroger Co. and Providence Health) are expected to add approximately 15,000 jobs to these two industries. Carrie Freestone, an economist at Royal Bank of Canada, pointed out that due to factors such as an aging population, the demand for jobs in the healthcare industry is expected to be unaffected by cyclical factors.

For the Federal Reserve, officials previously stated that even if Trump's tariffs weaken consumer and business confidence, a resilient labor market and strong inflation mean they can maintain the status quo. However, lower-than-expected employment data will challenge this view, exacerbating the Fed's dilemma under the unusual dual threat of rising inflation and deteriorating economic growth, and may force the central bank to take action to support the economy.

Regarding market impact, Bank of America strategist Michael Hartnett noted in a report that employment data is a key indicator for determining whether the U.S. economy will enter a recession, and he believes in two economic scenarios and their market impacts:

Soft Landing with an increase of 100,000 to 200,000 jobs: This means the U.S. economy will not enter a recession. The S&P 500 index will recently maintain a low level of 5,500 points. U.S. retail and residential construction stocks will see a rebound.

Hard Landing with an increase of less than 100,000 jobs: This means the U.S. economy will enter a recession, and the S&P 500 index will fall to a new low in April, with global stock markets, banks, and credit markets declining accordingly, potentially prompting the Trump administration to significantly shift towards tax cuts to stimulate the economy.

Powell's "Tariff" Position is Crucial

Tariffs are pushing the U.S. towards an economic growth slowdown or even stagnation, with rising prices leading to a "stagflation" dilemma. Investors will closely monitor Powell's stance on the Trump administration's latest tariffs.

Last month, Powell stated that their baseline expectation is that the inflationary pressure brought by tariffs may be "transitory." However, if the Fed misjudges the situation, they may fall behind in addressing the inflation issue.

The choice facing Fed officials is a dilemma: either cut interest rates to support the economy or maintain high rates for an extended period to curb inflation. Economists expect that this series of tariff measures will exert dual pressure on the Fed, both weakening the economy and pushing up prices.

Economists generally expect that tariffs will raise inflation and slow economic growth, and the Fed will adopt a wait-and-see attitude. However, following the announcement of the tariffs, the debate over the path of interest rates has intensified. Morgan Stanley currently expects no rate cuts this year, down from a previous forecast, citing inflation risks, while UBS expects further rate easing this year According to Xinhua News Agency, U.S. President Trump publicly urged the Federal Reserve to cut interest rates last month, acknowledging that tariffs would impact the U.S. economy and that the Federal Reserve needs to "do the right thing." Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives, stated:

"Compared to the tariff measures during Trump's first term, I believe the impact of this round of tariffs will be more dispersed and therefore harder to identify. More goods are affected, and more companies are impacted."

Josh Hirt, a senior economist at Vanguard U.S., indicated that long-term trade conflicts could trigger stubborn commodity inflation, making it more difficult for the Federal Reserve to escape the effects of tariffs. The longer commodity inflation persists, the more he worries that price pressures will spread more broadly. Hirt stated:

"In this scenario, there is indeed a risk that inflation begins to spread more into the service sector, further transmitting to wages, and even having a greater impact on inflation expectations."

The impact of tariff policies on the market has already become evident, as traders have begun to bet on a Federal Reserve interest rate cut. The money market now indicates a 100 basis point cut by the end of the year, equivalent to four cuts of 25 basis points, which is higher than the approximately 75 basis points before the announcement of the tariff increase. On Friday, the yield on the U.S. 10-year Treasury bond fell by 5 basis points to 3.95%.