Lackluster US Job Numbers Open Door for Interest Rate Cuts by Federal Reserve
The latest monthly jobs report from the US Labor Department has given the Federal Reserve the go-ahead to lower interest rates in the coming weeks. Non-farm payrolls rose by 142,000 in August, well below what analysts were expecting, raising concerns about the slowing pace of job growth.
While the national unemployment rate held steady at 4.2%, the weak payroll number signifies that employer hiring is lagging population growth through immigration. Only an average of 116,000 new jobs have been added over the past three months, far short of the roughly 200,000 needed each month to maintain healthy absorption of new workforce entrants. Some economists said hiring in two of the last three months may have been effectively zero once statistical variability is accounted for.
In light of the disappointing jobs data, traders ramped up bets that the Fed will opt for a bigger 0.5 percentage point rate cut at its next policy meeting in mid-September versus the 0.25 point move anticipated previously. The jobs figures presented a clear signal to the central bank that lowering borrowing costs will help lift the job market back to solid momentum.
However, not everyone agrees an aggressive initial cut is warranted since the unemployment rate stayed low. While economic growth is slowing somewhat, there are no signs of serious trouble that would justify an outsized response from the Fed just yet. Policymakers may prefer a more modest first reduction in rates to avoid sending the wrong message of weakness to financial markets. Their decision in the coming weeks will help shape the path of the economy.
