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Strong Jobs Report Pressures Fed Toward September Rate Hike
The U.S. received a jobs report showing that companies hired many more people than expected in August.
This suggested that the economy may still be strong.
Investors therefore thought the Federal Reserve might raise interest rates soon to slow inflation.
Higher interest rates can make borrowing more expensive for families and businesses.
The possibility of higher rates pushed major stock indexes lower.
Government bond yields also rose.
Some Fed officials favor considering a rate increase if inflation stays hot, while another official said rates could remain unchanged if inflation cools.
A new inflation report is due before the Fed’s September 16 meeting.
Oil prices also rose because of the conflict involving the United States and Iran, adding to inflation worries.
U.S. employers added 162,000 jobs in August, far above the 65,000 forecast, while unemployment held at 4.1%.
The S&P 500 fell 0.4%, the Dow declined 0.5%, and the Nasdaq lost 0.3% on Friday.
Markets raised the estimated probability of a September 16 Federal Reserve rate hike to 60.4%, from 49.4% Thursday.
Treasury yields increased, with the 10-year yield reaching 4.78% and the two-year yield climbing to 4.37%.
Rising oil prices linked to the U.S.-Iran conflict added to inflation concerns, with Brent crude settling at $96.28 per barrel.
- Who
- U.S. employers, investors, the Federal Reserve, and Federal Reserve officials including Kevin Warsh and Christopher Waller.
- What
- A stronger-than-expected August jobs report increased expectations that the Federal Reserve could raise interest rates.
- Where
- The effects were seen in U.S. stock and Treasury markets; the Fed symposium referenced was held in Jackson Hole, Wyoming.
- When
- The report and market reaction occurred Friday; the Federal Reserve’s next meeting ends September 16, after inflation data are released September 11.
- Why
- Stronger hiring and persistently elevated inflation could give policymakers more reason to raise rates, although cooling inflation could support keeping rates unchanged.
Rate Hike Case
Hold Rates Case
How to respond to employment and inflation
Rate Hike Case
The stronger-than-expected payroll report and inflation remaining above 3% could justify raising interest rates on September 16 to combat price increases.
Hold Rates Case
A rate hike is not certain because the Fed must also support job growth, and higher borrowing costs could slow economic activity.
Importance of upcoming inflation data
Rate Hike Case
Kevin Warsh said inflation has not improved enough and that the central bank may have more work to do, supporting consideration of a rate increase.
Hold Rates Case
Christopher Waller said he would be inclined to leave rates unchanged if new data show inflation cooling, while reserving a hike for hotter inflation.
Key facts
- August job gains
- 162,000, compared with a 65,000 forecast
- Unemployment rate
- 4.1%, unchanged
- September rate-hike probability
- 60.4% according to CME FedWatch, up from 49.4% Thursday
- S&P 500 close
- 7,718.60, down 29.11 points or 0.4%
- 10-year Treasury yield
- 4.78%, up from 4.77%
- Two-year Treasury yield
- 4.37%, up from 4.34%
- Upcoming inflation report
- August consumer price index data are scheduled for September 11
Quotes
Terry Sandven
Chief equity strategist at U.S. Bank Asset Management Group
“With the August CPI report now on deck, the question is whether the combined impact of stronger-than-expected hiring and a stiff inflation tail wind will push policymakers to the tipping point of raising rates later this month”
republicworld.com
“Given the strength of the payroll report, a rate hike on Sept. 16 appears increasingly likely. Ironically, a rate hike may generate less market volatility than another meeting in which policymakers choose to stand pat.”
republicworld.com
Sources
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