The Fed


Inflation data still seen as key in central bank’s strategy

Referenced Symbols

The August U.S. jobs report perhaps slightly increased the chances of a half percentage point interest rate hike by the Federal Reserve later this month, but the inflation data released on Sept. 13 will be key to the Fed’s decision, economists said Friday.

“The bottom line in our view is that this report has elements the Fed will like, a little that they won’t like,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“The chance of a 50 basis point hike this month has increased, but the inflation data are key to the FOMCs decision. We expect decent numbers, so we are sticking with our 50 bp call,” he added.

Luke Tilley, chief economist at Wilmington Trust, agreed: “On its own, [the report] is not likely to push the Fed toward a 75 basis point rate hike”.

The U.S. unemployment rate rose to 3.7% in August from a 50-year low of 3.5% in the prior month. The pace of job gains moderated to 315,000 from 526,000 in July.

Underneath the surface of the data, labor supply improved and there was a softening of wage gains.

Read: The jobs market is still on fire by this measure, so don’t expect Fed to back off

“The 315,000 gain in nonfarm payrolls in August is not a game-changer for the Fed,” said Josh Shapiro, chief U.S. economist at MFR Inc.

Overall, the data didn’t appear to have changed anyone’s preconceived idea about the Fed’s decision later this month.

Economists who went into the Friday data thinking the Fed would slow the pace of rate hikes down to a half a percentage point felt the same way after the report was released.

“We don’t think today’s report moves the needle on the Fed. We are sticking with our 50bps base case for September, though it is admittedly a very close call,” said Aneta Markowska, economist at Jefferies.

The same was true for economists expecting the third straight 0.75 percentage point rate hike.

“While the Fed will likely welcome a moderating pace of hiring and a stronger labor supply as small steps toward looser labor market conditions, the continued tightness in the labor market and robust wage growth will likely keep the Fed on course for a 75 bps rate hike in September,” said Lydia Boussour, economist at Oxford Economics.

Economists agreed that the debate would continue at least until the government releases the August consumer price inflation data on Sept. 13.

U.S. stocks DJIA, +0.61% SPX, +0.66% jumped at the open and have kept moving higher in the wake of the jobs data.