NFP Report: 25 or 50bps Rate Cut – What’s the Fed’s Next Move?
Despite falling short of the expected 161,000 jobs, the U.S. Bureau of Labour Statistics (BLS) stated that nonfarm payrolls expanded by 142,000 in August. In line with projections, the report also showed a minor decline in the jobless rate to 4.2%.
The number of jobs added in July was reduced from the original report by 25,000. Furthermore, a substantial revision was made to the June data, which now indicate a new total of 118,000 jobs added, down from a previous 61,000.
Although employment growth was less than anticipated, average hourly earnings showed some improvement, increasing by 0.4% during the course of the month. This growth exceeded projections, which predicted a 0.3% gain.
Earnings increased by 3.8% annually, which was little higher than the forecast 3.7% growth.
The S&P 500 increased in response to today’s news as investors considered the implications of the August jobs report for U.S. monetary policy. Investors are already pricing in a 50% possibility of a September 50bp reduction from the Federal Reserve.
These are the opinions of Wall Street economists regarding the jobs report released today.
Jefferies: “This falls well short of meeting the very high threshold that we had set for the data to force the Fed to drop rates by 50 basis points in September. Although we wouldn’t go so far as to suggest that this should make the Fed think twice before passing up the chance for a cut at the next meeting, the strategy is supported by more data points than those that favour a larger cut.”
Evercore ISI: “We think the Fed should cut 50 out the gates with this data, but the Committee is inertial and Powell may not have enough here to deliver 50, and may have to settle for a dovish 25 – presented as the start of a string of 25s at every meeting into Q1 with an avowed readiness to step up to 50 at any point including November if downside risks to employment mount.”
Important Information: “While the August jobs data isn’t as bad as anticipated, it’s still rather sluggish due to significant negative revisions to June and July and a low Establishment survey number. The Fed’s decision to hike interest rates by 50 basis points on September 18 was more than justified by this release alone (and the case is strengthened when other recent reports, such as JOLTs and the Beige Book, are taken into account). This is not because the economy is collapsing, but rather because it is at a critical turning point, and a soft landing could worsen if policy support is not provided.”
