Unexpected 254K Jobs Growth Probably Means Lower Rate Cuts

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The September jobs report revealed a gain of over 254,000 jobs, with the unemployment rate at 4.1%. This significantly exceeded the Dow Jones economists’ forecast of 150,000 jobs and an unemployment rate of 4.2%. Given these results, it seems unlikely that the Federal Reserve will implement another 50-basis-point interest rate cut at the upcoming Federal Open Market Committee meeting in November.

Not only did the September jobs figure surpass expectations by 69.3%, but previous months’ data were also revised upward—July’s numbers increased by 55,000 and August’s by 17,000, totaling an upward adjustment of 72,000 jobs.

Wage growth also came in stronger than anticipated, with expectations set at 0.3% month-over-month and 3.8% year-over-year. The actual figures were 0.4% and 4.0%, respectively.

The Federal Reserve’s dual mandate focuses on maintaining price stability and achieving full employment. Recently, Chair Jerome Powell has noted that concerns about inflation have diminished, emphasizing the importance of a robust labor market that should not be neglected.

The unexpected surge in hiring and wage growth suggests the economy may be performing better than anticipated, raising questions about the necessity of further rate cuts.

Gina Bolvin, president of Bolvin Wealth Management Group, commented, “With rising oil prices due to heightened tensions in the Middle East and increasing average hourly earnings, the Fed may become concerned about inflation making a comeback. We could see a renewed focus on balancing both aspects of their mandate.”

Oxford Economics echoed this sentiment, stating, “The report makes another 50-basis-point rate cut unlikely. We anticipate a 25-basis-point cut in November and December.”

The markets are responding to this news, with treasury yields on both the 2-year and 10-year notes rising sharply after the unexpectedly strong payroll data and a decrease in the unemployment rate to 4.1%. Quincy Krosby, chief global strategist for LPL Financial, noted that by noon on Friday, the 10-year yield had jumped 10 basis points compared to Thursday’s close.

Looking ahead to potential rate cuts in November, the influence of job numbers could be mixed and potentially volatile. As Oxford Economics pointed out, job growth might weaken this month if the Boeing strike continues, although the resolution of port strikes could mitigate some concerns in the October report.

 

Source:  GlobeSt.