The jobs report showed a surprising drop of 33,000 in nonfarm payrolls – largely thought to be a result of the hurricanes that devastated the Southeast in August and September, according to a CNBC report. However, the jobs report also showed an acceleration in wage growth, from a 2.5% annualized gain in August to 2.9% in September. That new wage pressure could help push inflation to 2%, what the Fed considers a healthy level.
“The (Federal Open Markets Committee) should key in on the lower unemployment rate, and rising average hourly earnings and labor-force participation as the signal on whether to raise interest rates again in December,” Scott Anderson, Bank of the West chief economist, told CNBC. “I expect Federal Reserve officials to maintain their hawkish bent.”
That likely means another rate hike this year, probably in December. Last month, the market gave the probability of a rate hike this year – and well into next year – at only about one in three, CNBC reported. Today’s jobs numbers caused that probability to spike to 88%.
“The combination of a tight labor market and higher earnings increases the odds of additional Federal Reserve tightening and supports the argument for another Fed rate hike this year, likely at the December meeting,” James Ragan, director of individual investor group research at D.A. Davidson, told CNBC.
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The disappointing jobs report for September may have given the Federal Reserve the ammunition it needs to hike rates again this year.