Strong August jobs report leaves one other jumbo Fed price hike on the desk in September

Employment Growth Cools in the US, Wages Rise Slightly Less Than Anticipated

Although hiring remained robust enough for the Federal Reserve to approve a second significant rate hike when it meets later this month, U.S. job growth slowed in August. Although they were less than expected, wages also increased. The average hourly wage increased by 5.2% over the previous year and by 0.3% over the month, which was somewhat less than Refintiv’s predictions of 5.3% and 0.4%, respectively. The job statistics raised the likelihood of another 75 basis-point rate of interest increase later this month, even though markets initially reacted favourably to the announcement. As a result, shares closed down on Friday.

Officials have already approved two increases in interest rates of 75 basis points each in June and July, and they have stated that, in light of impending economic information, a third increase of that size is possible in September. This data doesn’t really change the Fed’s existing monetary policy trajectory. We urge the Fed to attempt bringing the Federal Funds rate down to 4% by the end of the year and to carry the policy rate by 75 basis points.

Based on the CME Group’s FedWatch programme, which analyses trading, investors are already pricing in a 58% chance of another 75 basis point raise at the conclusion of the Fed’s two-day discussion on September 21. However, 44% more people believe the Fed will only raise interest rates by half a point.

Only a week had passed since Fed Chairman Jerome Powell unsettled the markets with his keynote address in Jackson Hole, Wyoming, when he resurrected the danger of an increasingly aggressive Fed that is committed to fighting inflation regardless of the possible consequences to the economy.

Powell said, “While slower growth, higher interest rates, and more favourable labour market conditions will reduce inflation, they will also cause some pain to households and businesses.” These regrettable expenses are associated with bringing back price stability. However, much more suffering would result from a failure to restore price stability.