A rebound in the job market in August that still showed signs of cooling is likely to keep the Federal Reserve on track to cut interest rates by a quarter percentage point this month.
The results: 142,000 jobs were created in the month of August, compared with economists’ expectations for 165,000 and up from 89,000 in July that was revised down from 114,000. The unemployment rate ticked down to 4.2% from 4.3% in July.
With continued cooling in the job market and confidence that inflation is now dropping back toward the central bank’s 2% target, two members of the Fed said Friday the time has come to cut rates but stopped short of telegraphing by how much.
“I believe the time has come to lower the target range for the federal funds rate at our upcoming meeting,” Fed governor Chris Waller said in a speech at the University of Notre Dame titled “The time has come.”
Meanwhile, in prepared remarks before the Council on Foreign Relations, New York Fed president John Williams said, “It is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate.”
Williams said this is a natural step and that interest rates can move down to a more “neutral stance over time.”
The central bank, which is set to meet September 17 and 18, is laser focused on the job market now, as the labor market has weakened. At the same time officials who were worried about inflation — the other half of the Fed’s dual mandate — are more confident inflation is cooling sustainably back to their 2% target.
Bets by investors on how much the Fed could cut rates at its next meeting, based on the CME Fed Watch tool, have fluctuated wildly all day from around a 50-50 chance the central bank could cut by a quarter or half a percentage point to greater odds — a nearly 60% chance — the Fed will cut by half a percent.
Fears swirled after a weaker-than-expected jobs report in July stoked recession fears and caused the central bank to shift greater focus toward the job market. The August jobs report confirmed the cooling trend and underscored that the sky isn’t falling.
Fed governor Waller said the jobs report for August supports the story of ongoing moderation in the labor market.
“Today’s jobs report continues the longer-term pattern of a softening of the labor market that is consistent with moderate growth in economic activity,” Waller said.
“While the labor market has clearly cooled, based on the evidence I see, I do not believe the economy is in a recession or necessarily headed for one soon,” he added.
Content retrieved from: https://finance.yahoo.com/news/the-time-has-come-why-the-august-jobs-report-keeps-the-fed-on-track-for-a-25-basis-point-rate-cut-173004086.html.
