US job growth cooled in August, but the workforce last month likely remained healthy enough for the Federal Reserve to approve another jumbo rate hike when it meets later this month.
Employers added 315,000 jobs in August, the Labor Department said in its monthly salary report released Friday, in line with the 300,000 jobs forecast by Refinitiv economists. That is the lowest monthly gain since April 2021 and is a big drop from the 526,000 jump recorded in July.
The unemployment rate, meanwhile, unexpectedly rose to a six-month high of 3.7% as the employment rate increased.
Wages also continued to rise, but were lower than expected. Average hourly wages increased 0.3% for the month and 5.2% from the previous year, slightly below Refintiv’s estimates of 0.4% and 5.3%.
FED RAISES INTEREST BY 75 BASE POINTS IN ANOTHER HISTORICAL MEASURE TO TACKLE INFLATION
While markets initially reacted positively to the report, shares closed lower on Friday after employment data opened up the possibility of another 75 basis point rate hike later this month. The S&P 500 ended 1.1% lower, while the Dow Jones Industrial Average fell 1.1% and the Nasdaq fell 1.3%.
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“These data do little to deter the Fed from its current monetary policy path,” said RSM chief economist Joe Brusuelas. “We are calling on the Fed to raise its key rate by 75 basis points, and it should aim to raise the Federal Funds rate to 4% by the end of the year.”
While monthly job data is always important, the Federal Reserve kept a close eye on this particular report for signs that the labor market is beginning to slow from its frenzied pace as policymakers try to push inflation, which is still near a 40-year high, to 2%.
Policymakers have already approved consecutive rate hikes of 75 basis points in June and July and have indicated that another hike of that magnitude is on the table in September, pending economic data.
Friday’s report gave little insight into whether the Fed will go for a three-quarter percentage point increase, or a slightly smaller but still large half-point increase. Experts say the report’s evenness leaves the door open for a third 75-point increase.
“Despite weaker job growth in August and the rise in the unemployment rate, these numbers are unlikely to deter the Fed from a further sharp hike in interest rates during its September FOMC meeting,” said Ben Ayers, senior economist at Nationwide. “High inflation remains the primary focus and the labor market still shows signs of continued strength.”
According to the CME Group’s FedWatch tool, which tracks trades, traders are already counting on a 58% chance of another 75 basis point gain by the end of the Fed’s two-day meeting on Sept. 21. However, another 44% think the Fed will go with a half-point increase instead.
The report came just a week after Fed chairman Jerome Powell shocked the market with his keynote speech in Jackson Hole, Wyoming, in which he renewed the specter of an increasingly aggressive Fed determined to fight inflation regardless of the potential economic fallout.
FED RATE HIKES WON’T STOP INFLATION IF GOVERNMENT Spending REMAINS HIGH, PAPER SAYS
“While higher interest rates, slower growth and softer labor market conditions will bring inflation down, they will also cause some pain to households and businesses,” Powell said. “These are the unfortunate costs of curbing inflation. But if price stability is not restored, it would mean much more pain.”