What Will the FOMC Do Now? — Evening Brief – 10.04.24
U.S. nonfarm payrolls increased by 254,000 in September, compared to projections of 132,500; this is the largest monthly increase since March and more than the average monthly gain of 203,000 over the previous 12 months. Meanwhile, the unemployment rate fell to 4.1% from 4.2%, according to the Bureau of Labor Statistics.
Payrolls for July were revised up by 55,000 to +144,000, and August was revised up by 17,000 to +159,000. With the revisions, employment in July and August combined is 72,000 higher than previously reported.
The BLS also reported that average hourly earnings increased by $0.13, or 0.4%, to $35.36. Over the past 12 months, average hourly earnings have increased by 4%.
The decline in the unemployment rate can be attributed to the pop in employed workers along with the decline in unemployed workers, from 7.115 million to 6.834 million.
The report arrives at a time when the prevailing opinion was that the recent downward trend in employment would persist, which was initiated by the near-record annual jobs revision and several months of subpar job reports.
The moving six-month average for nonfarm payrolls is 167,000, as per UBS. The estimate is that 150,000 is approximately in line with the economy’s return to trend growth.
The nonfarm payrolls report follows mixed employment readings this week. On Wednesday, U.S. private nonfarm payrolls climbed by 143,000 in September from 103,000 in August, which was revised from 99,000, according to the ADP National Employment report. However, jobless claims increased more than anticipated on Thursday, potentially indicating a possible near-term cooling that could be observed in October.
The concern from a monetary policy perspective is that the increase in payrolls coincides with the Federal Reserve’s easing cycle and wages are once again on the rise, prompting worries that the downward trend in inflation may have stalled.
“Did the Fed even need to cut rates in September, let alone cut by 50bps,” questioned chief global strategist Seema Shah of Principal Asset Management. “The monster upside surprise suggests that the labor market may be a picture of strength, not weakness, and it completely dismisses the idea that the Fed could even contemplate another 50bps cut in November. Markets will need to keep a closer eye on inflation as, now, there are policy risks on both sides of the economy.”
While there will be another payrolls report before the Federal Open Market Committee decides on its next monetary policy move, the market is now placing an 89.9% probability of a 25-basis point interest rate cut at the November 6-7 meeting , up from 67.9% on Thursday, while the odds of a 50-basis point rate cut are now less than 10%, according to the CME FedWatch tool.