Fed seen done with rate hikes after jobs data
September 1, 2023
Linea Mercati Interview 9/5/23
September 5, 2023Reuters
September 1, 20239:11 AM EDTUpdated 6 hours ago
A pedestrian passes a “Help Wanted” sign in the door of a hardware store in Cambridge, Massachusetts, U.S., July 8, 2022. REUTERS/Brian Snyder/File Photo Acquire Licensing Rights
NEW YORK, Sept 1 (Reuters) – The U.S. economy added more jobs than expected in August, but a rise in the unemployment rate and moderation in wage growth pointed to an easing in labor market conditions, fueling expectations the Federal Reserve could pause its rate hike cycle.
Nonfarm payrolls increased by 187,000 jobs last month, the Labor Department said in its closely watched employment report on Friday, above the 170,000 estimate of economists polled by Reuters. Data for July was revised lower to show 157,000 jobs added instead of the previously reported 187,000.
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CANDICE TSE, GLOBAL HEAD OF STRATEGIC ADVISORY SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK
“The job market continues to show signs of moderation as the broader economy moves towards a soft landing, reinforcing market expectations that the Fed will keep interest rates steady at the September meeting With US economic data remaining strong and the Fed providing greater clarity on the policy path forward, investors may find opportunities to generate alpha in both equities and fixed income.
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“In equities, high index concentration and optimism about AI have benefited a handful of large-cap stocks, but investors may find broader investment opportunities as markets have become increasingly micro-driven.”
STEVE WYETT, CHIEF INVESTMENT STRATEGIST, BOK FINANCIAL, TULSA OKLAHOMA
“If you’re the Federal Reserve, this is a path you need to see and from a market perspective, the changes are slow enough that this isn’t a danger. It is really unbelievable to see how the economy is unwinding from all of the monetary and fiscal stimulus, but if we can keep this path going, then the ideal soft landing is still in play.
“This is exactly the kind of environment that the Fed would draw out. They’re not chasing inflation anymore. It’s still higher than their target. They can remain restricted to some degree, but not feel like they have a lot of pressure to continue to raise interest rates and really push the economy into a recession.
“The revisions to the initial report have been down all year. That 187k, if we look at what’s happened this year, it’s going to be revised lower next month. But the key part of this (data) is the average hourly earnings. And this is where the Fed has to be satisfied. “
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“The bottom line is this report is playing into the hands of the Fed and it certainly indicates that the labor market is weakening.
“Today’s nonfarm payrolls number might be higher than consensus, but that’s irrelevant with the unemployment participation rates moving higher.
“Hourly wages came in below what we were looking for, and that’s a good sign for the Fed.
“This report is likely to put the Fed on hold in September, and if we get more positive inflation news in September and October, the Fed is likely done, and we’ve seen the end of the rate hikes.”
MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON
“Today’s jobs report provides investors the best of both worlds. It’s the labor market softening just enough to keep the Fed at bay while it’s strong enough to prevent an economic recession, and this is what the market’s reacting to in terms of yields falling and stocks rising.
“We’re in this delicate balance. The labor market is weakening, but that’s still a historically low rate. So, at 3.8% were considered full employment. The market is happy to see that we’re seeing some weakness.
“The top line numbers compared to earlier in the year are falling, the revisions were lower for average hourly earnings. The inflation rate is falling, wage inflation is falling. So, this is exactly what markets wanted to see, because this will prevent the Fed from aggressively raising interest rates.”
JAKE REMLEY, SENIOR PORTFOLIO MANGER, INCOME RESEARCH & MANAGEMENT, BOSTON, MASSACHUSETTS
“This is very favourable for the Fed’s inflation fight. Hourly wages came down. The labor force participation rate ticked up. That’s been pretty stagnant and didn’t come back as quickly after Covid as it has in the past. Those two are moving in the right direction for the Fed.
“(The revisions) are definitely a sign that this time is a little bit different in terms of this cycle and how fast it’s moving relative to previous one. That is unfortunately somewhat lost on the market since its so reactionary. It is important in the long run to look at those numbers and see if we’re seeing weakness in certain sectors.
“Treasuries rallied hard after the number came out though that has since faded a little bit. It does speak to ‘bad news is good news’ right now. These numbers are very supportive for the Fed to pause in September but also support further uncertainty around a November hike.”
RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, NEW VERNON, NEW JERSEY
“The data is pretty mixed. I guess the initial reaction is up because the market has been very focused on not seeing any outliers that suggest rate rises are likely to keep coming. This number is in-line but the trend of this market has been to look forward. In terms of the economy, I feel that we’re near a plateau for short-term rates and I don’t think anything that was said today changes that. So the market is continuing to rally a bit.
“We’re going to need much more positive indications that inflation has been curbed before we could see a more meaningful breakout to the upside.
“These numbers probably put the Fed back on path for one more rate rise and that’s it. But we’ll need to see better inflation numbers to be certain that rate rises are over and I think this market is starting to think about rate cuts and when that might come. That’s probably the focus of the next move up. But it’s always a delicate balancing because having inflation curbed by having the economy stop, it is not particularly good for stocks.” BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN “The headline beat, but the details disappointed. June’s and July’s numbers were revised down materially. June and July were probably close to cruising speed for the labor market. Wage growth has slowed to a pace consistent with stable inflation. Payrolls have slowed to a pace consistent with stable inflation. The Fed stuck the landing, but they didn’t know it, so they’ll crash the landing instead.”
ART HOGAN, CHIEF MARKET STRATEGIST, B RILEY WEALTH, BOSTON
“The overall report is very much in line with expectations. When we look at this number, it still leaves anticipation of the Fed leaving rates unchanged at the September meeting. The only anomaly I would see in the report is that the unemployment rate moved up and I suspect that a good chunk of that likely reflects the Screen Actors Guild and writers strike.
“Because of the different potential strikes, whether it’s the United Auto workers of the Screen Actors Guild with the writers, we’re going to have to consider this month and likely next month’s payroll numbers to be a little noisy until those strikes get worked out.”
Compiled by the Global Finance & Markets Breaking News team
