Strong August jobs report leaves another huge Fed rate hike on the table for September

U.S job growth cooled off in August, but contracting probably stayed healthy enough last month that the Federal Reserve will approve another huge interest rate hike when it meets later this month.

Employers added 315,000 jobs in August, the Labor Department said in its monthly payroll report released Friday, in line with the 300,000 jobs forecast by Refinitiv economists. That marks the lowest monthly gain since April 2021 and is a significant decline 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 rose.

Wages also continued to rise, but were lower than forecasts. Average earnings per hour it rose 0.3% in the month and 5.2% from a year earlier, slightly below Refintiv’s respective estimates of 0.4% and 5.3%.

FED RAISES INTEREST RATES BY 75 BASIC POINTS IN ANOTHER HISTORIC MOVE TO ADDRESS INFLATION

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

Despite 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 fell 1.3%.

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

While monthly job data is always important, the Federal Reserve was watching this particular report closely for signs that the labor market is beginning to slow from its frenetic pace as policymakers try to fight inflation, which is still near a 40-year high, back to 2%.

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

Friday’s report provided little information on whether the Fed will opt for a three-quarter percentage point hike or a slightly smaller but still large half-point hike. Experts say the uniformity of the report leaves the door open for a third 75-point increase.

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

“Despite weaker job gains during August and the rise in the unemployment rate, these numbers are unlikely to deter the Fed from a stronger interest rate hike during the September FOMC meeting,” he said. Ben Ayers, senior economist at Nationwide. “High inflation remains the main focus and the labor market is 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 September 1. 21, according to CME Group’s FedWatch tool, which tracks trade. However, another 44% believe that the Fed will opt for a half point hike.

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

FED RATE RAISING WON’T STOP INFLATION IF GOVERNMENT SPENDING REMAINS HIGH, DOCUMENT SAYS

“While higher interest rates, slower growth and softer labor market conditions will reduce inflation, they will also bring some pain to households and businesses,” Powell said. “These are the unfortunate costs of reducing inflation. But failing to restore price stability would mean much greater pain.”