Strong jobs report puts aggressive rate cuts by the Fed on ice
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Data: FactSet; Chart: Axios Visuals
Good news on jobs means you can say goodbye for now to your dreams of continued aggressive rate cuts from the Federal Reserve.
State of play: The Fed may have adjusted rates by a supersized half percentage point in September, but strong employment data released Friday morning put on ice the possibility that it would do so again anytime soon.
- Besides the strong job growth, positive revisions and lower jobless rate, wage gains were robust in September, which could spark worries among policymakers that high inflation is not as fully vanquished as it has seemed.
By the numbers: Average hourly earnings rose 0.4% in September and over the last three months have risen at a 4.3% annual rate, higher than is consistent with the Fed's 2% inflation target. That number was below 3% in April.
- That helps explain a furious sell-off in bonds this morning, as investors have repriced the outlook for Fed policy.
- The policy-sensitive two-year Treasury yield is up 0.19 percentage point this morning to 3.9% as investors anticipate both a slower pace of rate cuts and a higher terminal rate than they did before the news.
The intrigue: The jobs numbers probably aren't enough to entirely halt the Fed's rate-cutting campaign, given that rates remain elevated relative to inflation. But they take off the table the idea that the Fed is behind the curve of a rapidly deteriorating labor market.
What's next: The Fed's next policy meeting concludes Nov. 7, and the central bank's leaders will see a full round of September inflation data and the October jobs report before then.
- As of this morning, futures markets priced in 99% odds of a quarter-point rate cut at that meeting, per the CME Fedwatch tool. Those odds were 47% a week ago.
Go deeper: The U.S. job market is strikingly robust
