U.S. job growth eased in August, but hiring likely remained healthy enough last month for the Federal Reserve to approve another hefty rate hike when it meets later this month.
Employers added 315,000 jobs in August, the Labor Department said in its monthly payrolls report released Friday, in line with the 300,000 jobs forecast by economists at Refinitiv. This marks the lowest monthly gain since April 2021 and is a significant drop from the 526,000 jump recorded in July.
The unemployment rate, meanwhile, unexpectedly rose to a six-month high of 3.7 percent as the labor force participation rate rose.
Wages also continued to rise, but were lower than forecast. Average hourly earnings rose 0.3% for the month and 5.2% from a year earlier, slightly below Refintiv’s respective estimates of 0.4% and 5.3%.
FED RAISES RATE RATE BY 75 BAPS IN ANOTHER HISTORIC MOVE TO TACKLE INFLATION
Now hiring signs are displayed in front of restaurants in Rehoboth Beach, Delaware, on March 19, 2022. ((Photo by STEFANI REYNOLDS/AFP via Getty Images) / Getty Images)
Although markets reacted positively to the report initially, stocks closed lower on Friday after employment data left open the possibility of another 75 basis point interest rate hike later this month. The S&P 500 fell 1.1%, while the Dow Jones Industrial Average fell 1.1% and the Nasdaq fell 1.3%.
Ticker Security Last Change Change %I:DJI DOW JONES AVERAGES 31318.44 -337.98 -1.07%I:COMP NASDAQ COMPOSITE INDEX 11630.864481 -154.26 -1.31%SP500 S&394 -1.31% SP500 -31%.
“These figures don’t do much to derail the Fed from the current path of monetary policy,” said RSM chief economist Joe Brusuelas. “We are calling on the Fed to raise the policy rate by 75 basis points and should try to raise the Federal Funds rate to 4% by the end of the year.”
While monthly jobs data is always important, the Federal Reserve was watching that report closely for signs that the labor market is beginning to slow from its frenetic pace as policymakers try to wrestle inflation, still near a 40-year high, back to 2 percent.
Policymakers have already approved back-to-back rate hikes of 75 basis points in June and July and have signaled that another increase of that size is on the table in September, depending on upcoming economic data.
Friday’s report provided little insight into whether the Fed will go ahead with a three-quarters percentage point increase or a slightly smaller but still large half-point increase. Experts say the flatness of the report leaves the door open for a third increase, 75 points.
Federal Reserve Chairman Jerome Powell speaks during a press conference at the Federal Reserve Board building in Washington, Wednesday, July 27, 2022. (AP Photo/Manuel Balce Ceneta/AP Images)
“Despite weaker August job gains and a rise in the unemployment rate, these data are unlikely to prevent the Fed from raising rates further sharply at the FOMC meeting in September,” said Ben Ayers, senior economist at Nationwide . “High inflation remains the primary objective with the labor market still showing signs of continued strength.”
Traders are already pricing in a 58 percent chance of another 75 basis point hike at the end of the Fed’s two-day meeting on Sept. 21, according to CME Group’s FedWatch tool, which tracks trades. Another 44%, however, think the Fed will go ahead with a half point hike.
The report came just one week after the Fed Chair Jerome Powell spooked the market with his keynote address in Jackson Hole, Wyoming, in which he renewed the specter of an increasingly hawkish 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 reduce inflation, they will also bring some pain to households and businesses,” Powell said. “That is the unfortunate cost of reducing inflation. But a failure to restore price stability would mean much greater pain.”
