Surprisingly strong September jobs data released on Friday suggests the Fed may not need to make another huge rate cut next month.
When the Fed cut interest rates by half a percentage point last month, central bank leader Jerome Powell said in a press conference that the decision was aimed at protecting the strength of the labor market as inflation appears to be under control. He said it was.
Some economists characterized this as a so-called “reduction in insurance benefits.” In addition to price stability, the Fed is also mandated by Congress to promote maximum employment, and with price pressures now largely contained, central bank officials are more focused on the health of the U.S. job market. is placed.
After a steady increase in the unemployment rate over the past year, Fed officials are taking steps to prevent a deterioration in the labor market, as employers are still hiring at a steady pace and the unemployment rate has not continued to rise. This means that there is no need to take any more aggressive action. So far, that doesn’t appear to be happening, at least according to government data. A separate report released earlier this week showed job openings unexpectedly increased in August and remain above pre-pandemic levels.
“Unless next month’s jobs report turns out to be a disaster, this result puts us on track for a 50 basis point cut in interest rates at the Fed’s next November meeting,” Brett Kenwell, U.S. investment analyst at eToro, said in a note Friday. There is a high possibility that it will be done.” “While one report doesn’t necessarily give investors an ‘all clear’ sign, this is a big step in the right direction, and the September jobs report certainly speaks to that.”
Some Fed officials had already said, even before September’s surprising jobs report, that they wanted to be more cautious in cutting interest rates going forward.
“Even with 50 basis points, we’re still in a tough position, so we didn’t mind taking a bigger step,” Minneapolis Fed President Neel Kashkari told CNBC last week. “As we move forward, I think overall we’ll probably be taking smaller steps unless the data changes significantly.”
Investors overwhelmingly expect the Fed to cut rates by a quarter of a percentage point at its next policy meeting on Nov. 6-7, according to futures markets.
