by Ann Saphir
(Reuters) – The Federal Reserve is expected to hold on to big interest rate hikes in the coming months to cool inflation, but rising U.S. unemployment and slowing wage growth keep deals Employees are betting that next year’s borrowing costs may ultimately not be as high as previously expected.
This comes after the Labor Department reported Friday that employers increased more than expected
, 000 jobs Unemployment rose from 3.5% to 3.7% last month as more workers joined
Traders The Fed is still expected to implement a third 75 basis point rate hike in its September -000 At the meeting, the benchmark rate was raised to 3%-3.%, although they have reduced that probability to 21 )% from pre-report 70%, based on the CME Fedwatch tool.
Futures contracts closely tied to the Fed’s policy rate next year suggest traders are now pricing in the federal funds rate at a 3-year bottom. 75 The range to March is %-4%, below near the top of the earlier range.
“August employment report paints a very positive picture,” ING Economics. “With wage growth lower than expected, this points to a slower pace of rate hikes following the 75 basis point change in September expectations.”
Federal Reserve Chair Jerome Powell said a week ago that the Fed would raise borrowing costs enough to start stimulating growth, softening the labor market and lowering inflation, but said the size of the September rate hike would depend on the “wholesomeness” of previous data. ” .
As prices rise more than triple the Fed’s 2% inflation target and hit the highest in 21 years In the coming weeks, the jobs report will rank behind data on consumer prices and inflation expectations, two key issues at the heart of the Fed’s attempt to reduce demand in response to supply constraints.
“This report is a step in the right direction, but not a huge step in that direction,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments, who sees By Friday’s jobs report the September rate hike was 0.5 percentage points.
“The key is of course the inflation data. This may determine whether this should be done 50 or 75 basis points,” he said. It’s about whether those who work can keep their jobs — and whether the U.S. economy can avoid a recession — because the Fed keeps inflation down.
“The soft landing versus recession debate has been around for some time, and economists and investors have been grappling with it,” State Street Bank (NYSE: STT) strategist Michael Arone. “This jobs report supports the soft landing narrative.”
Much still needs to be done to achieve this pleasing outcome, most of which is beyond the Fed’s control and has historically been There is almost no precedent.
Futures contract prices for settlement next year show traders now expect the Fed to raise its policy rate to about 3.83% by March , down from 3.9% before the jobs report.
The Fed is expected to keep rates in a range of 3.75%-4% until after next summer, with market participants expecting a small easing from the central bank policy.
Fed policymakers oppose that scenario, with Cleveland Fed President Loretta Mester saying she does not expect a rate cut next year.
The Fed will release new policymaker forecasts when it releases its next rate decision in September.