US Nonfarm Payrolls report raises 'fresh challenges' for Fed
The August nonfarm payrolls report was a slight disappointment, providing fresh confirmation of a continued cooling in US labour market conditions. The 142k net jobs added last month was slightly below consensus, while there was also a relatively sizable downward revision to the July number, dragging the 3-month moving average of job creation to its lowest level since the early days of the COVID-19 pandemic.
We are, however, continuing to see a dichotomy between the household and establishment survey. There was no upside surprise in the jobless rate, as this dropped as expected to 4.2%. Wage growth is also accelerating again, which may provide a fresh challenge for the Federal Reserve in its quest to achieve its price mandate.
While markets have ramped up their bets in favour of a jumbo rate reduction from the Fed this month, the data in itself hasn’t been sufficient to seal the deal for a 50 basis point cut, which remains less than 60% priced in by futures markets. Next week’s CPI report for August will now be key, as a miss here may be required for the FOMC to go big in September.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
