Mixed jobs report keeps food on track for rate cuts: what experts say

VaselineSeptember 6, 2024

0 7 minutes read

Mixed jobs report keeps food on track for rate cuts: what experts say

A mixed August jobs report keeps the Federal Reserve on track to cut interest rates to a 23-year high, experts say, but it’s still uncertain whether the central bank will cut by a quarter of a percentage point or by half a percent. point.

US nonfarm payrolls expanded by 142,000 last month Bureau of Labor Statistics said Friday, or well below economists’ forecast for 165,000 job creation. Over the past year, the US economy has added an average of 202,000 jobs per month. In addition, the July jobs report was revised down by 61,000 jobs. Taken together, nonfarm payrolls for June and July were 86,000 lower than previously reported.

The unemployment rate, which is derived from a separate survey, fell to 4.2 percent from 4.3 percent the previous month.

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A weakening labor market is putting increasing pressure on the Federal Reserve’s rate-setting group, the Federal Open Market Committee (FOMC), to cut the short-term federal funds rate to the next Fed meeting.

“August payrolls point to upside risks as the labor market clearly eases and the Fed needs to step in to reduce tail risks,” writes Sonu Varghese, global macro strategist at The Carson Group. “The report seals the deal for a September interest rate cut, but the big question is whether the Fed goes big (by cutting 50 basis points) to address rising risks.”

Fed chief Jerome Powell opened the door to a Rate reduction from September when the central bank concluded its regularly scheduled two-day policy meeting on July 31. Powell took an even more conciliatory turn when spoke at Jackson Hole at the end of August.

Market participants concerned about a resurgence of inflation tend to favor a quarter-point (25 basis points) cut in interest rates. Those who fear for the health of the economic expansion and believe the Fed is behind the curve argue for a half point (50 bps) cut.

Based on the reaction to the August jobs report, a cut of a quarter point remains the betting favorite. As of Sept. 6, futures traders assigned a 77 percent chance the FOMC would adopt a quarter-point cut, up from 60 percent a day ago, according to CME Group. FedWatch tool. The odds that the Fed will cut by half a point at its next meeting fell to 23% from 40% a day ago.

With the August jobs report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their comments below, sometimes edited for brevity or clarity.

August jobs report: The experts weigh in

job report

(Image credit: Getty Images)

“August’s employment report confirmed Jackson Hole’s Jay Powell’s message that the labor market has cooled considerably and the direction of travel is clear. But the report was not definitive enough, in my view, to settle the 25 vs 50 basis point rate cut debate. Wall Street or the FOMC Yes, the labor market is cooling, but that’s no reason to panic. We still expect a 25 basis point discount. – Scott Anderson, US Chief Economist at BMO Capital Markets

“More confusion, less clarity. Today’s economic data is unclear and ambiguous, but we believe that while the labor market is not falling apart, the jobs picture is slowing and the Fed will start tapering. Employment for August provided a mixed bag of statistics that, when looking at headline readings alone, suggest some sequential strength from the previous month. Payrolls were higher in August and the unemployment rate fell slightly in July and were revised lower, implying some additional softness in the labor market relative to initial results. However, wage gains were slightly stronger than expected (which bodes well for continued consumer spending) and hours worked increased (which implies continued stability. Overall, this will support the Fed’s recent statement that it’s time to start tapering, but it’s also likely to force them to remain somewhat cryptic about the amount and pace of rate cuts in the coming months.” – George Mateyo, Chief Investment Officer at The key wealth

“The 142,000 new nonfarm jobs were below expectations, but those expectations were probably too high. This could take some of the air out of the 50 bps rate cut deal. The Fed continues to signal 25 bps in September and that seems likely to happen There has been a lot of talk about the Fed being too late. The 142,000 new jobs, relative consumer strength and stabilizing prices push a bit against that narrative, although the number was slightly below expectations. and the Fed can be patient. We expect a rate cut in September, but it is likely to start the easy cycle cautiously.” – Scott Helfstein, Head of Investment Strategy at Global X

“Today’s weak jobs report should solidify the case for a rate cut this month by the Fed and could justify further policy easing if the trend continues. a call to action”. – Eric Merlis, managing director and co-head of global markets at people

“This morning’s employment report was mixed enough that our outlook is still for a 25 basis point cut at the September FOMC meeting. That’s not to say that a 50 basis point move can’t be made, after all, NFP missed In addition, the JOLTS report showed a large decline in job openings and increases in hard-to-get jobs, but the overall unemployment rate fell back to 4.2%. Hourly earnings came in slightly higher than expected. The sum of all these parts is a picture of a labor market that is clearly weaker than it has been, but broadly positive, it would appear that the Fed is not sufficiently muted to do more than “normal” and cut 25 of base points. The need to reduce rates is clear, but the path of these reductions remains uncertain”. – Steve Wyett, Chief Investment Strategist at Financial BOK

“The size of the Fed’s September easing is now on the verge of being cut. August’s partial easing of July’s job growth slowdown and rising unemployment leaves the outcome of this month’s Fed meeting finely balanced between 25 bps and 50 bps easing. Huge downward revisions to payrolls over the past two months leave net job creation in this report at just 56,000, more than 100,000 below consensus, moreover, the trend continues for the initial print to be revised lower as response rate for the establishment survey. rises, casts doubt on August’s tepid recovery.” – Ian Shepherdson, Chairman and Chief Economist at Pantheon of Macroeconomics

“This morning’s non-farm payrolls report provided some relief, coming in close to expectations and showing a drop in unemployment. After last month’s miss and the Fed’s increased focus on labor as inflation cools, a sharp rise in unemployment could trigger a deeper economic downturn, the market said. more aggressive selling and action from Powell, while other parts of the economy have slowed and conditions are indeed tightening, steady labor growth may still lead the economy to a real soft landing.” – Ben Vaske, Senior Investment Strategist at Orion Portfolio Solutions

“The data was soft enough to make the Fed more accommodative, but not weak enough to confirm recession fears. The labor market bends, but does not break. Looks like we’re on track for a soft landing. The bears don’t make it. Cyclical areas like manufacturing and leisure are slowing as the Fed wanted, but healthcare is filling the gap, which could be an unexpected positive for an aging population. – David Russell, Vice President of Market Intelligence at TradeStation

“After a weak report in July that was revised to be even weaker, August’s jobs report did little to reassure markets concerned about a further bend in the labor market or settle the debate over whether the Fed will should cut rates by 50 basis points later. While August tends to be an unusual month for labor market data, we felt this report continued to support our view that while the pace of hiring is slowing significantly, labor markets are normalizing at a pace compatible with Fed. Productivity growth for the second quarter was revised upwards, largely reflecting an upward revision to GDP growth – consistent with our near-term view that the US economy is undergoing a Great Normalization that feels like an economy penetrating in a swamp without falling off a cliff.” – Timothy Chubb, Chief Investment Officer at Girard Advisory Services

“This morning’s report continues a trend of weakening economic data. Downward revisions from previous months are common in a slowing economy. The latest Job and Turnover Survey (JOLTS) report, released earlier this week, showed a continued decline in job openings. Today’s jobs data will make it likely that the Fed will consider a 0.50% cut at its meeting later this month, although a more likely outcome, in my view, is that the Fed should cut with half a percent economic weakness”. – David Royal, Chief Financial and Investment Officer at Flourishing

“Our base case remains that the Fed offers three 25bps cuts between now and the end of the year, although we recognize that the risks are leaning towards a more aggressive path than that. After all, cutting 50 bps this month isn’t hard to justify: Powell made it clear the Fed doesn’t “welcome” a weaker labor market, and this could be the opportunity to get ahead of it as hiring slows next week’s CPI report would strengthen the argument. Without a clear signal from the August jobs data, markets will be watched ahead of the September Fed meeting. The Fed can make the call between a 25 bps or 50 bps cut and whichever is justifiable. Regardless, we are at the top of the policy rate cycle.” – Elyse Ausenbaugh, Head of Investment Strategy at JP Morgan Wealth Management

VaselineSeptember 6, 2024

0 7 minutes read

Vaseline

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