Strong August jobs report leaves another massive Fed rate hike on the table in September

we job growth In August, but employment likely remained healthy enough last month for the Federal Reserve to agree to another massive rate hike when it meets later this month.

The Labor Department said in its monthly payroll report released on Friday that employers added 315,000 jobs in August, in line with the 300,000 jobs predicted by economists at Refinitiv. This represents the lowest monthly profit since April 2021 and is a significant 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 continued to rise, but came in below expectations. Average hourly earnings It was up 0.3% for the month and 5.2% from a year earlier, slightly below the 0.4% and 5.3% estimates from Refintiv.

The Federal Reserve raises interest rates by 75 basis points in another historic move to tackle inflation

despite Market reaction was positive According to the initial report, stocks closed lower on Friday after employment data left open the possibility of another 75 basis point interest rate hike later this month. The S&P 500 finished 1.1% lower, the Dow Jones Industrial Average fell 1.1% and the Nasdaq fell 1.3%.

“This data doesn’t do much to derail the Fed’s current monetary policy,” said RSM chief economist Joe Brusolas. “We call on the Fed to raise the interest 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, Federal Reserve He was closely watching this particular report for signs that the labor market was starting to slow down from its frenetic pace as policy makers try to combat inflation, which is still near a 40-year high, returning to 2%.

Policy makers have already agreed to raise interest rates by 75 basis points in a row in June and July and have indicated that another increase of that size is on the table in September, depending on upcoming economic data.

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

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

“Despite weaker job gains during August and higher unemployment, these numbers are unlikely to dissuade the Fed from another sharp rate hike during the September FOMC meeting,” said Ben Ayers, chief economist at Nationwide. “High inflation remains the primary focus as the labor market continues to show signs of continued strength.”

Traders are already pricing in a 58% chance of a further 75 basis point increase at the conclusion of the two-day Federal Reserve meeting on September 21, according to CME Group’s FedWatch tool, which tracks trading. However, another 44% think the Fed will go half a point instead.

The report came just one week after the Federal Reserve Chairman Jerome Powell The market panicked with his keynote address in Jackson Hole, Wyoming, as he renewed the specter of an increasingly hawkish Federal Reserve bent on fighting inflation, regardless of the potential economic fallout.

The paper says interest rate hikes won’t stop inflation if government spending remains high

“While higher interest rates, slower growth and weak labor market conditions will lower inflation, they will cause some pain for households and businesses,” Powell said. “These are the unfortunate costs of lowering inflation. But failure to restore price stability will mean much more pain.”