Investing.com -- Investors are looking ahead to the release of the all-important nonfarm payrolls data on Friday, which could factor into how the Federal Reserve gauges its next interest rate decision later this month.
Economists are predicting that the U.S. economy added 164,000 jobs in August, an increase from 114,000 in the prior month. The July total, which was far below expectations, sparked a broader market downturn as traders fretted over the possibility of a US recession.
Meanwhile, the unemployment rate is seen edging down to 4.2% from 4.3%, while month-on-month average hourly earnings growth is tipped to pick up slightly to 0.3%.
"Employment growth is slowing, but the July print exaggerated the trend. Hurricane Beryl and Texas power outages probably held back July payrolls," analysts at Morgan Stanley said in a recent note to clients. "The July slowdown also outran jobless claims, which have come down in recent weeks, and the jobs report contrasts with the momentum in consumer spending."
The labor market data will likely play into how Fed Chair Jerome Powell approaches a much-anticipated shift away from a focus on taming inflation to preparations aimed at guarding against job losses. Powell said in August that the "time has come" to adjust monetary policy due to potential "downside risks" facing the US jobs picture.
According to the CME Group's (NASDAQ:CME) closely-monitored FedWatch Tool, analysts are all but convinced the Fed will roll out a reduction in borrowing costs at the central bank's upcoming two-day gathering from Sept. 17-18. Interest rates currently stand at a 23-year high of 5.25% to 5.5%.
There is currently a more than 55% chance the Fed will choose to slash borrowing costs, which currently stand at a 23-year high of 5.25% to 5.5%, by 25 basis points, the FedWatch Tool showed.
However, another downbeat payrolls figure may exacerbate concerns over a slump in the jobs market and, some analysts are predicting, persuade the Fed to roll out a deeper 50-basis point cut.
"The pivot from inflation to jobs is complete," analysts at Citi said in a note to clients on Tuesday.
The Citi analysts said they project that payrolls will come in at 125,000, adding that this would be "soft enough" for the Fed rates by 50 basis points.
Elsewhere, the Morgan Stanley analysts are calling for a payrolls figure of 185,000 and a jobless rate of 4.2%. Analysts at Nomura, meanwhile, see the numbers at 130,000 and 4.2%, respectively.
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