A US jobs report released Friday, showing a sharper-than-expected slowdown in hiring, strengthened expectations that Federal Reserve policymakers will refrain from delivering a second consecutive interest rate hike this month, giving them more time to assess additional economic data before making another decision.
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However, that assessment could change following data that has yet to be released, particularly the Consumer Price Index, a closely watched measure of inflation that is due before the Federal Reserve’s policy meeting on October 27-28.
After raising interest rates by a quarter of a percentage point last month to put inflation on a “faster” path toward the Fed’s 2% target, US central bank officials are now weighing the risks of moving too slowly to contain price pressures against the potential damage to the labor market from moving too quickly.
Federal Reserve Chair Kevin Warsh has maintained his policy of avoiding comments on the risks he sees or the path interest rates may need to take, but some of his colleagues have been less reserved.
Asked whether the Fed should raise interest rates or hold them steady at its next meeting, Chicago Fed President Austan Goolsbee said there was “a lot of room to put any option on the table.”
Goolsbee added that he believes the latest jobs data indicate that the labor market remains stable.
“I think the inflation side of the Fed’s mandate is where the problem is. We need to watch that closely,” he said.
The Labor Department reported Friday that US employers added just 29,000 jobs last month, well below economists’ expectations of 90,000, while employment figures for August were revised downward.
After raising short-term borrowing costs last month, policymakers indicated they would likely deliver at least one more rate hike by the end of the year if the war in Iran and other shocks that have pushed inflation higher continue.
With efforts to reach an agreement to end the war still stalled and trade tensions remaining a major concern, expectations as recently as the beginning of this week pointed to a rapid series of rate hikes. Long-term bond yields also climbed to their highest levels in 24 years on Thursday, while mortgage rates rose above 7%.
However, Federal Reserve Vice Chair Philip Jefferson and New York Fed President John Williams said in separate remarks this week that they wanted to see more data before considering further action, prompting investors to scale back their bets on a rate hike at the Fed’s October meeting.
An analysis of CME Group’s FedWatch tool showed that investors were pricing in a 25% probability of a rate hike in October, while assigning a very high probability to a hike in December.
Data released this week showed that inflation, based on the measure used by the Federal Reserve, stood at 3.4% in August. That was well above the Fed’s 2% target, but below economists’ expectations.
Source: Reuters
