Solid August jobs report leaves another jumbo Fed rate hike on the table in September

WE job growth It cooled off in August, but hiring remained healthy enough last month for the Federal Reserve to approve another jumbo rate hike when it rebounds later this month.

The Labor Department said in its monthly payroll report released Friday, employers added 315,000 jobs in August, in line with Refinitiv economists’ estimate of 300,000 jobs. This marks the lowest monthly gain since April 2021, a huge drop from the 526,000 jump recorded in July.

Meanwhile, the unemployment rate unexpectedly rose to a six-month high of 3.7% as the labor force participation rate increased.

Wages also continued to rise, but came in below estimates. Average hourly earnings It was up 0.3% for the month and 5.2% year-on-year, slightly below Refintiv’s respective estimates of 0.4% and 5.3%.

FED INCREASED INTERESTS BY 75 BATS IN ANOTHER HISTORICAL ACTION TO AGAINST INFLATION

Now hiring signs are displayed in front of restaurants in Rehoboth Beach, Delaware, on March 19, 2022. ((Photo by STEFANI REYNOLDS/AFP via Getty Images) / Getty Images)

Despite markets reacted positively First, stocks closed lower on Friday after employment data left open the possibility of a 75bps rate hike later this month, according to the report. The S&P 500 closed down 1.1%, while the Dow Jones Industrial Average fell 1.1% and the Nasdaq fell 1.3%.

“These data do little to divert the Fed from its current monetary policy path,” said RSM chief economist Joe Brusuelas. “We urge the Fed to raise the policy rate by 75 basis points and should try to raise the Federal Funds rate to 4% by the end of the year.”

While monthly business data is always important, Federal Reserve Policymakers were watching this special report closely for signs that the labor market was starting to slow from its frenetic pace, while still trying to push inflation back to 2%, which was near its 40-year high.

Policy makers approved consecutive 75 basis points rate hikes in June and July, and signaled that another increase of this magnitude is on the table in September, depending on future economic data.

Friday’s report gave little insight into whether the Fed would go with a three-quarter point gain or a slightly smaller but still large half-point gain. Experts say the smoothness of the report leaves the door open for a third, 75-point increase.

Federal Reserve Chairman Jerome Powell speaks at a press conference at the Federal Reserve Board building in Washington on Wednesday, July 27, 2022. (AP Photo/Manual Balce Ceneta/AP Footage)

“Despite weak jobs gains and a rise in the unemployment rate in August, these figures are unlikely to deter the Fed from an even sharper hike in interest rates at its September FOMC meeting,” said Ben Ayers, senior economist at Nationwide. “High inflation remains a primary focus as the labor market still shows signs of continued strength.”

Traders are pricing in a 58% chance for a 75 basis point gain by the end of the Fed’s two-day meeting on Sept. 21, according to CME Group’s FedWatch tool that monitors trade. Another 44% think the Fed will go with a half-point increase instead.

The report came just a week after the Fed Chairman Jerome Powell Jackson Hole frightened the market during his keynote speech in Wyoming, renewing the specter of an increasingly hawkish Fed determined to fight inflation regardless of potential economic fallout.

IF PAPER EXPENDITURES REMAIN HIGH, FED INTEREST RISES WILL NOT STOP INFLATION

“While higher interest rates, slower growth and softer labor market conditions will reduce inflation, it will also bring some pain to households and businesses,” Powell said. Said. “These are the unfortunate costs of lowering inflation. But not being able to restore price stability means much more pain.”