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U.S. jobs data could push the Fed to raise interest rates for the third time

(Bloomberg) — The much-anticipated U.S. jobs report threatens to set off a third major wave of interest rate hikes later this month.

Friday’s report is one of the last major reports Fed officials have on hand ahead of their mid-September policy meeting to help them decipher a complex economic and inflation puzzle.

Prediction calls for health but more moderate 298, Payrolls rose in August and the unemployment rate held steady at 3.5%, the lowest level in 50 years. Wages are also expected to rise steadily amid a persistent mismatch between labor supply and demand.

These data, combined with a July jobs blowout, improving consumer confidence and an unexpected pickup in job openings, may be enough to push the Fed to raise borrowing costs 75 basis points, extending the biggest rate hike in a generation to curb soaring inflation.

“In the context of all this data, this report becomes very important,” said Anna Wong, chief U.S. economist at Bloomberg Economics. It can “confirm” what other data has been showing – the economy is very resilient.

Conversely, any signs of slowing job growth combined with a bigger slowdown in the Labor Department’s average hourly earnings data could help shift expectations toward a half-point rate hike. Still, Fed officials will need to see the results of the consumer price index later this month to clarify their views on the appropriate policy response.

Federal Reserve Chairman Jerome Powell said last week that the Fed’s decision later this month “will depend on the volume of incoming data and the changing outlook.”

An important part of the job report is the salary indicator. Economists expect the report to show average hourly earnings rose 0.4% from a month ago and 5.3% from August 2021. The annual growth will accelerate slightly compared to the previous two months.

Slower wage growth could signal waning inflationary pressures, offering some comfort to Fed officials, though it’s not always the case for the founder of Stay-at-Home Macro (SAHM) consultancy and former Fed economist Scientist Claudia Sahm said.

Inflation? ‘” Sahm said.

Companies have been raising wages across industries and income brackets to attract and retain workers. As Americans weather rising prices for essentials like food and rent , which has underpinned consumer spending. It also makes the challenge of the Fed slowing the economy to rein in rising prices more difficult.

New data from the ADP Institute on Wednesday showed those staying in the The median annual salary for those in their jobs rose 7.6% year over year in August. Those who changed jobs saw more than double that.

Still, U.S. companies posted a 7.6% increase in August in August. The relatively slow pace of headcount growth, ADP reports 132, 000 since the beginning of last year The smallest increase.

The jobs report is where policymakers “may place the highest signal value” Michael Gabon, head of U.S. economics at Bank of America

Michael Gapen) said that while Friday’s report could help push policymakers toward another upward revision at the end of the two-day meeting in September 21, and another perspective on what the central bank will consider: the closely watched CPI.

Inflation data

Minneapolis Fed President Neal Kashkari said in an interview on Bloomberg’s Oddlots podcast that he will be watching the jobs report for signs of wage growth, but stressed that he is looking at inflation data taking into account interest rate changes in September.

“Ultimately, I’m very focused on inflation data and inflation expectations data,” Kashkari said in an interview that aired on Thursday. “Personally, I don’t think the labor market itself will decide 21 vs 21.”

Atlanta Fed President Rafael Bostic agrees.

“Upcoming data – if they make it clear that inflation has started to slow – may give us reason to start from 2021 basis points in rate hikes,” Bostic said in an article on his bank’s website on Tuesday.

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