A stronger-than-expected September jobs report has shifted Wall Street’s outlook on the Federal Reserve’s potential rate cuts at its November meeting, leaning towards a more cautious approach. The report has raised doubts about whether the Fed will cut interest rates, with some analysts dismissing hopes for a more aggressive 50 basis point cut.
Paul Ashworth, chief North American economist at Capital Economics, stated that given the labor market’s strength, the debate should be about whether the Fed should ease monetary policy. As of Friday morning, following the report, markets were only pricing in an 8% chance of a half-point cut, a sharp drop from the previous 53% odds.
The report, released by the Bureau of Labor Statistics, showed a significant addition of 254,000 payrolls in September, well above the 150,000 expected by economists. Furthermore, revisions to July and August added 72,000 more jobs than initially reported, reinforcing a robust labor market. The unemployment rate declined to 4.1%, down from 4.2% in August.
Federal Reserve Chair Jerome Powell had previously indicated that the labor market remained strong, and this report supports that stance. Powell emphasized that the Fed’s goal is to maintain economic momentum while bringing inflation down, which has informed the rate-cut strategy thus far.
Many economists, such as Kathy Bostjancic from Nationwide and Seth Carpenter from Morgan Stanley, believe that despite the strong labor data, the Fed will still proceed with smaller 25 basis point cuts in November and December, as previously forecasted. However, this report suggests that any further rate cuts will be more measured and carefully aligned with continued economic resilience.
