The strong surge in US job growth has raised expectations of further interest rate hikes, indicating a potential shift in economic policy.
US Job Growth Surpasses Expectations, Fueling Rate Rise Expectations
In a surprising turn of events, the number of jobs in the United States surged more than expected last month, leading to increased speculation that interest rates could rise further. According to figures released by the Labor Department, employers added 336,000 jobs in September, almost double the estimated 170,000. Additionally, data for August was revised higher, showing that 227,000 jobs were created instead of the previously reported 187,000.
The leisure and hospitality sector played a significant role in this job growth, with 96,000 jobs added in September alone, surpassing the average monthly gain. Employment in food services and bars also rose by 61,000 over the month, returning to pre-pandemic levels. Despite the surge in job numbers, monthly wage growth remained moderate, with average hourly earnings rising by 4.2% in the 12 months to September.
The US central bank, the Federal Reserve, has been carefully monitoring these developments as it considers its next steps in stabilizing inflation. Last month, the central bank decided to keep its key interest rate unchanged, evaluating whether its previous actions have been sufficient in controlling the rate of price increases. The Federal Reserve’s rate target, currently set at 5.25%-5.5%, is the highest level in over two decades. Since March 2022, the bank has been gradually raising borrowing costs from near zero in an attempt to rein in rising prices.
However, the resilience of the jobs market in the face of the Federal Reserve’s efforts to cool down the economy has led to suggestions that interest rates could remain tight for a longer period. Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, expressed her surprise at the 336,000 job gains, stating that it “blows past even the most bullish estimate.” Traders, following Friday’s figures, have increased their bets that the central bank will raise interest rates before the end of the year and maintain them at high levels in the coming year.
Brian Coulton, chief economist at ratings agency Fitch, believes that the strong jobs growth will continue to exert upward pressure on wages, making it more likely that the Federal Reserve will need to raise interest rates further. Seema Shah, chief global strategist at Principal Asset Management, shares this sentiment, stating that the figures reinforce the “higher for longer narrative” and that the Federal Reserve will need to respond with more rate hikes.
Adding to the concerns surrounding inflation, consumer prices in the US rose more than expected in September, primarily driven by higher costs for rent and fuel. The inflation rate, which measures the pace of price rises, reached 3.7% over the 12 months to August, up from 3.2% in July. Although inflation has dropped significantly from its peak last year, it still exceeds the Federal Reserve’s target of 2%.
As the US job market continues to demonstrate resilience and inflation remains elevated, it appears that the Federal Reserve may need to take further action to address these challenges. The potential for interest rate hikes in the near future could have significant implications for the US economy and its recovery from the pandemic.
