---
title: "Is the Market Scaring Itself? Severe K-Shaped Economic Divergence: On What Basis Would the Fed Raise Rates?"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/289161164.md"
description: "In May, U.S. Non-Farm Employment unexpectedly rose by 172,000, triggering market panic over potential Fed rate hikes, which led to rising Treasury yields and declines in equities and gold. Zhang Wei, an analyst at Caitong Securities, argues that this data was distorted by short-term factors such as the World Cup, and that the severe K-shaped divergence in the U.S. economy does not meet the prerequisites for a rate hike. The Fed's primary task is to maintain interest rate stability. While market volatility may persist in the short term, the mid-term tech bull market has not ended"
datetime: "2026-06-09T08:50:47.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/289161164.md)
  - [en](https://longbridge.com/en/news/289161164.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/289161164.md)
---

# Is the Market Scaring Itself? Severe K-Shaped Economic Divergence: On What Basis Would the Fed Raise Rates?

A better-than-expected Non-Farm Employment report has pushed market concerns about Federal Reserve rate hikes to new highs—but this panic over tightening liquidity is likely more a case of the market "scaring itself."

On the evening of June 5 (Beijing time), the U.S. Department of Labor announced that Non-Farm Employment increased by 172,000 in May, far exceeding the market expectation of 85,000. Following the release, the CME FedWatch tool showed that derivatives markets had fully priced in a Fed rate hike starting in December of this year. Liquidity-sensitive assets subsequently suffered heavy losses: the 10-Year Treasury Yield rose by 8.1 basis points in a single day to 4.55%, the Nasdaq Composite Index fell by 4.2%, and London spot gold dropped by 3.25%.

In response, Zhang Wei, an analyst at Caitong Securities, stated in a report on the 9th that **the unexpected growth in this Non-Farm Employment data shows clear structural peculiarities and cannot be regarded as a signal of broad-based economic overheating.** Meanwhile, the K-shaped divergence in the U.S. economy remains severe, and there are no signs of unanchored inflation expectations in the real sector, none of which meet the preconditions for triggering a rate hike. Caitong Securities believes that the current primary task of the new Fed Chair, Warsh, is to maintain the stability of nominal interest rates. Before advancing toward the broader goal of rebuilding monetary discipline, he must first play the role of a "tumbler" in the short term.

It is worth noting that before the release of the results from the Federal Open Market Committee (FOMC) meeting in the early hours of June 18 (Beijing time), market concerns about liquidity will not dissipate quickly. High volatility may continue, and there is even a risk of further adjustments. However, from a medium-term perspective, neither the liquidity environment nor the AI industry trend has substantially deteriorated, and the tech bull market has not yet ended.

## Illusion Shattered: The "World Cup Effect" Behind the 172,000 Non-Farm Jobs

The addition of 172,000 Non-Farm Employment jobs in May appears impressive, but structural analysis reveals significant short-term disturbances. Caitong Securities points out that **this increase in employment was highly concentrated in the leisure and hospitality sector within services (adding 70,000 jobs) and local government (adding 55,000 jobs), with the two combined accounting for the vast majority of the increase.**

The sharp jump in employment in the leisure and hospitality sector is closely related to the upcoming World Cup. Co-hosted by the United States, Canada, and Mexico, this World Cup will kick off on June 11 (U.S. time). The number of participating teams has expanded from 32 to 48, and the number of matches has increased from 84 to 104. Eleven U.S. cities will host 78 matches, including the quarterfinals, semifinals, and final. As the large-scale event approaches, it inevitably drives a short-term surge in temporary labor demand in service industries such as catering and hotels.

Caitong Securities believes that this portion of the increase lacks sustainability, and at least until after the World Cup concludes can a preliminary judgment be made on employment trends. Interpreting this data as a comprehensive strengthening of the labor market, and thereby deducing the necessity of a rate hike, is logically untenable based on the data itself.

## Fragile K-Shaped Economy: The Real Sector Cannot Afford Rate Hikes

Even setting aside the peculiarities of the Non-Farm Employment data, the overall U.S. economy is far from reaching a point where rate hikes are needed to curb overheating. Data from Caitong Securities shows that **the K-shaped divergence in the U.S. economy remains severe—aggregate figures are acceptable, but structural pressures continue to accumulate.**

On the credit front, the Q1 credit card delinquency rate remained at 2.95%, and the serious delinquency conversion rate reached as high as 7.12%, both at highs since the pandemic. In real estate, the annualized sales volume of new homes in April was 622,000 units, and existing home sales were 4.02 million units, both below pre-pandemic levels. Moreover, there has been no effective rebound since the Fed began its rate-cutting cycle in September 2024.

The divergence in durable goods consumption is also significant. Driven by the AI industry trend, the year-over-year growth rate of sales for electronic products and appliances rebounded from 3.1% in November last year to 7.6% in April this year. However, the growth rates for automobile sales, home appliances, and home furnishings continued to slow down or even turn negative, declining by 1.4% and 3.6% year-over-year in April.

This pattern of "loose monetary policy in finance, tight monetary conditions in the real economy" is the core cause of the K-shaped divergence. The six rate cuts by the Fed since September 2024 have failed to effectively lower financing costs for the real sector, and the spillover effects of the AI boom have not yet transmitted to traditional, interest-rate-sensitive economic sectors. Based on this, the crux of the current U.S. economy lies in structural fragility, not overall overheating.

## Inflation Expectations Remain Anchored; No Trigger for Rate Hikes

From an inflation perspective, the Fed also lacks the basis to initiate rate hikes. The Fed's core framework for assessing inflation anchors on two dimensions: whether inflation has formed a sustained upward trend, and whether there is a risk of long-term inflation expectations becoming unanchored. Currently, neither condition is met.

> -   **No wage-price spiral has formed:** The year-over-year growth rate of hourly earnings in the U.S. private sector slid from 3.7% in December 2025 to 3.6% in April this year and 3.4% in May.
> -   **Real purchasing power turns negative:** Influenced by rising oil prices due to the outbreak of the U.S.-Iran war, the U.S. CPI rose by 3.8% year-over-year in April (an increase of 1.1 percentage points compared to December 2025). Subtracting the CPI growth rate from the hourly earnings growth rate, U.S. residents' real purchasing power officially turned negative in April (down 0.2% year-over-year, a significant drop of 1.2 percentage points from December 2025).
> -   **Inflation expectations remain firmly anchored:** The New York Fed's May survey showed that the median consumer inflation expectations for 1-year and 3-year horizons were only 3.46% and 3.13% (even slightly lower than during the tariff friction period in April last year), with the 5-year expectation at 3.02%. There are absolutely no precursors to malignant inflation, such as panic hoarding, in the real sector.
> 
> 
## The Fed's True Task: Stabilize Rates, Not Tighten

Based on the above analysis, the most important task for the Fed currently is neither to curb demand overheating nor to fight inflation, but to maintain the relative stability of nominal interest rates.

On one hand, the K-shaped divergence extends to capital markets—tech stock valuations are highly sensitive to interest rates, as are credit and consumption activities in traditional economic sectors. The more fragile the structure, the more it relies on a stable interest rate environment. **On the other hand, even if the Fed were to initiate rate hikes, the tightening effect would only fall on the interest-rate-sensitive lower end of the K-shape (traditional industries such as consumption and real estate), failing to suppress the expansion of the AI industry. This would amount to making the already fragile lower end of the economy pay for the AI boom, further exacerbating structural imbalances.** If the AI industry trend itself weakens and spillover effects fail to materialize, the K-shaped economy will converge from the top down to the bottom, at which point the necessity of rate hikes becomes even less tenable.

Therefore, Caitong Securities judges that before achieving the long-term vision of reshaping fiscal and monetary discipline and restoring confidence in the U.S. dollar, Warsh needs to stabilize the situation in the short term. Indeed, if capital markets continue to push up nominal Treasury yields driven by unreasonable expectations, the Fed may even need to release dovish signals or cut rates to correct market deviations.

Thus, the current market expectation of rate hikes is largely a case of "scaring itself," and there will be no substantive tightening of liquidity. Before the release of the FOMC meeting results on June 18, liquidity concerns may continue to suppress market sentiment, and short-term volatility and adjustment risks still warrant caution. However, over a longer timeframe, neither the liquidity environment nor the AI industry trend has fundamentally changed, and the foundation of the tech bull market remains intact.

Risk Warning and Disclaimer

The market carries risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment decisions made based on this content are the sole responsibility of the investor.

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