Investing.com – A disappointing August job report released on Friday, with gloomy data across the board, won’t be enough to change the Federal Reserve’s resolve to hike rates at least once more in 2017, according to the experts.
Among the worse-than-expected data points, job creation missed the mark in August with a total of just 156,000, missing expectations of 180,000 positions.
The jobless rate unexpectedly rose to 4.4% last month, when economists had forecast it to remain stable at July’s 16-year low of 4.3%.
Wage inflation too missed the mark by rising just 0.1%, compared to estimates for a 0.2% month-on-month advance. The annualized rate rose by just 2.5% for a fifth consecutive month.
The increase in wages is being closely monitored by the Fed for evidence of diminishing slack in the labor market and upward pressure on inflation. Economists generally consider an increase of 3.0% or more to be consistent with rising inflation.
“It wasn't the best jobs report overall, but for the Fed, it's the weaker wage growth that will be most frustrating,” ING economists commented after the release.
Data won’t faze the Fed
However, these experts explained that job creation will naturally slow as the economy nears full employment and cited evidence that August’s payrolls are consistently lower on average which may be due to a seasonal adjustment.
“It would take consistently horrendous payrolls data for the Fed to really bat an eye-lid,” they claimed.
Economists at Capital Economics chief U.S. economist Paul Ashworth agreed that “it isn’t going to have any meaningful impact on the Fed.”
Macro Insight Group explained that “156,000 and 4.4% is sufficient for the ‘Fed’s Big 3’ to hike in December.”
“As for swing voters, it’s all about inflation,” these experts added.
Jobs report doesn’t help Fed’s market credibility
Traders seem to have accepted the fact that the Fed will forge ahead at the September 20 meeting with an announcement on plans to begin reducing their balance sheet by tapering their bond reinvestments.
However, markets remain skeptical that the Fed will be able to move ahead with its outlook to hike rates one more time this year.
Indeed, Fed fund futures put the odds at just around 39%, according to Investing.com’s Fed Rate Monitor Tool.
“The key implication of the jobs report is less about the economy and more about Fed policy,” Allianz chief economic adviser Mohamed El-Erian said.
“It reduces expectations of hikes, pressuring rates and the dollar,” he added.
ING agreed, stating that Friday’s job data “won’t help the Fed convince markets that it wants to hike rates faster than investors currently anticipate.”
These economists further noted that “a lack of a near-term inflation turnaround might see some Fed members downgrade their forecasts for rate hikes when the next dot diagram is released in a few weeks time”.
With markets skeptical and more than three months to go for the final policy decision to arrive in December, investors will most likely have to wait for the next Fed announcement on September 20 to gather clues on the policy path from both the announcement itself, along with economic projections and Fed chair Janet Yellen’s press conference.