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

WE job growth cooled in August, but hiring likely remained healthy enough last month for the Federal Reserve to approve another massive interest rate hike when it meets later this month.

Employers added 315,000 jobs in August, the Labor Department said in its monthly payrolls report released Friday, in line with the 300,000 jobs projected by economists at Refinitiv. This is the smallest monthly gain since April 2021 and a significant decline from July’s jump of 526,000.

The unemployment rate, meanwhile, unexpectedly hit a six-month high of 3.7% as the labor force participation rate rose.

Wages also continued to rise, but were lower than expected. Average hourly wage rose 0.3% for the month and 5.2% year-on-year, slightly below Refintiv’s respective estimates of 0.4% and 5.3%.

FED RAISES INTEREST RATES BY 75 BASIS POINTS IN ANOTHER HISTORIC MOVE TO TACKLE 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)

Although the markets reacted positively According to the report initially, stocks closed lower on Friday after jobs data left open the possibility of another 75 basis point interest rate hike later this month. The S&P 500 ended down 1.1%, while the Dow Jones Industrial Average fell 1.1% and the Nasdaq 1.3%.

Teleprinter Security Last To change To change %
Me: DJI DOW JONES AVERAGES 31318.44 -337.98 -1.07%
I: COMP NASDAQ COMPOSITE INDEX 11630.864481 -154.26 -1.31%
SP500 S&P500 3924.26 -42.59 -1.07%

“These data do little to derail the Fed from its current monetary policy trajectory,” said RSM chief economist Joe Brusuelas. “We call on the Fed to raise the policy rate by 75 basis points, and it should attempt to raise the federal funds rate to 4% by the end of the year.”

Although monthly employment data are always important, Federal Reserve was watching this particular report closely for signs that the labor market was starting to slow from its torrid pace as policymakers tried to fight inflation, which is still near a 40-year high, to come back at 2%.

Policymakers have already approved back-to-back interest rate hikes of 75 basis points in June and July and have signaled that another hike of that magnitude is on the table in September, depending on upcoming economic data.

Friday’s report provided little information on whether the Fed will go with a three-quarters percentage point hike, or a slightly smaller but still significant half-point hike. Experts say the evenness of the report leaves the door open for a third increase of 75 points.

Federal Reserve Chairman Jerome Powell

Federal Reserve Chairman Jerome Powell speaks during a press conference at the Federal Reserve Board Building in Washington, Wednesday, July 27, 2022. (AP Photo/Manuel Balce Ceneta/AP Images)

“Despite weak job creation in August and a rising unemployment rate, these numbers are unlikely to deter the Fed from another sharp interest rate hike at the September FOMC meeting,” said Ben Ayers, senior economist at Nationwide. “High inflation remains the primary concern, with the labor market still showing signs of continued strength.”

Traders are already pricing in a 58% chance of another 75 basis point hike at the end of the Fed’s two-day meeting on Sept. 21, according to CME Group’s FedWatch tool, which tracks the trade. However, another 44% think the Fed will opt for a half-point hike instead.

The report came just a week after Fed Chairman Jerome Powell spooked the market with his keynote address in Jackson Hole, Wyoming, during which he renewed the specter of an increasingly hawkish Fed determined to fight inflation regardless of the potential economic fallout.

FEDERATION RATE HIKES WILL NOT STOP INFLATION IF GOVERNMENT SPENDING REMAINS HIGH, PAPER SAYS

“While higher interest rates, slower growth and looser labor market conditions will reduce inflation, they will also hurt households and businesses,” Powell said. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

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