The Federal Open Market Committee (FOMC) is likely to be inclined to raise interest rates again by the end of the year, as the number of non-farm employees in the US employment report was significantly higher than expected.
The number of employees in September increased by 336,000 from the previous month, and the figures for July and August were also revised upward significantly. The unemployment rate in September was 3.8%, the same as last month, and wages grew at a moderate pace.
September U.S. employment growth significantly exceeds expectations – arguments for further interest rate hikes strengthen
“These numbers will make the FOMC more concerned about a re-acceleration of the economy and will be very cautious and concerned about upside risks,” said Luke Tilley, chief economist at Wilmington Trust.
The Fed, led by Chairman Jerome Powell, is trying to decide whether it needs to raise interest rates again, having raised them by more than 5 percentage points over the past 19 months. He said the FOMC left interest rates unchanged at its September meeting, but 12 of the 19 policymakers said they would support raising rates again this year, according to forecasts released after the meeting.
The market’s estimate of the probability of a rate hike this year rose from 48% to 56% immediately after the employment statistics were released.
U.S. Federal Reserve officials believe the labor market continues to overheat, leading to upward pressure on prices that pushes inflation well above the 2% target.
“Reducing inflation will likely require a period of below-trend growth and a softening labor market,” Federal Reserve Chairman Jerome Powell said on September 20.
Fed Chairman Powell
Source: Bloomberg
At the same time, Fed Chair Powell and other monetary policy makers have repeatedly said they will be cautious about raising rates further as the rate-hiking cycle draws to a close, and have indicated they are cautious about raising rates at the next FOMC meeting, which ends on November 1. There is.
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Regression risk
Diane Swonk, chief economist at KPMG, said the recent spike in long-term bond yields may already be doing some of the work for central banks. “Bond markets are doing the heavy lifting for the Fed. That said, faster growth justifies higher rates. Hawks remain concerned about a reversal in progress in inflation conditions at the November meeting. I will show you.”
Long-term interest rates have been on an upward trend since the September meeting. That’s as markets adjust to the authorities’ message that interest rates are likely to remain high for longer than previously thought. The yield on the 30-year Treasury note rose above 5% this week, its highest level since 2007.
Financial authorities can take comfort in other parts of the latest employment report. The average hourly wage increased by 0.2% from the previous month. Compared to the same month last year, it rose 4.2%, the slowest growth since mid-2021.
“While the labor market is certainly strong, the pace of wage growth is slowing,” said Kathy Jones, chief fixed income strategist at Charles Schwab. It will be difficult to strike a balance between subdued inflationary pressures and strong growth.”
While the jobs report suggests economic momentum remains strong, the FOMC will also be keeping a close eye on inflation indicators, including the Consumer Price Index (CPI), which is scheduled to be released on October 12th.
Original title:Fed Will Lean Toward Another Rate Hike After Blowout Payrolls(excerpt)
2023-10-06 17:33:00
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