Copy article

Odds of 50bps Fed cut reduced as "the US labour market goes supernova"

Journalist: John Choong (Head of Markets and Research), Newspage

ended 04. October 2024

Another 50bps cut from the US Federal Reserve in November is less likely after the latest non-farm payrolls (NFP) data showed that the labour market remains more resilient that Wall Street had anticipated. September's NFP headline print came in at a significant 254k, above consensus estimates of 140k. In addition to that, August's print was revised upwards to 159k from 142k.

The reason for September's stronger print was the strength of the private sector, as private payrolls effectively doubled to 223k from 114k, beating estimates of 125k. Government hiring of 31k also continues to help lift the overall NFP headline number.

The unemployment rate also dropped and remains within range of what the Fed would classify as “full employment”, at 4.1% from 4.2%. Meanwhile, average hourly earnings rose again to 4.0% after jumping to an upwardly revised 3.9% last month, on a year-on-year basis.

Newspage asked experts for their thoughts on the latest data, how it could impact the Fed's decision-making and inflation more broadly. Their views are below.

4 responses from the Newspage community

Copy all

Star Quote
Copy

Editor
David Belle
Founder and Trader at Fink Money
It looks like only 100bps of cuts will be in store for markets in 2024 after this seriously impressive print. This is literally the goldilocks situation we want. Growth is good, the employment situation is not worsening and corporate earnings can maintain. Bear in mind every 1% increase in GDP growth adds approximately a 3% increase in the NASDAQ and dip buyers will be in business as good employment numbers fuel a positive growth outlook.
Star Quote
Copy

Gabriel McKeown
Head of Macroeconomics at The Sad Rabbit Newsletter
The US labour market goes supernova, leaving economists' forecasts in the dust and potentially throwing a spanner in the works of the Fed's policy plans. This humdinger of a jobs report comes at a crucial juncture, as markets have eagerly anticipated signs of moderation that justify the Fed's recent dovish pivot. This latest data may force a reassessment of the anticipated rate cut trajectory, with the prospect of a 50bps cut in November, now far less likely. Equity markets, buoyed by hopes of a 'Goldilocks' scenario, may face headwinds as investors grapple with the implications of sustained labour market strength. There will be downward pressure on gold prices, with the Fed likely to maintain a more hawkish stance, however, the dollar will strengthen on the back of this data. As the dust settles on this extraordinary jobs report, investors are left to ponder the implications of an economy that refuses to be tamed, which has undoubtedly complicated the Fed’s next move.
Copy

Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
Even though there is another data set before the Feds next decision, the likelihood of another jumbo cut just got smaller. The jobs market is not showing signs of weakening as once feared which will surely feed into policy decision making. In one sense this is good news but not so for those wanting large consecutive rate cuts by the Fed.
Copy

Platinum
John Choong
Head of Equities and Markets at Investors Edge
Just as we had called last month, the Fed's 50bps was most likely a "forward load", rather than a signal to begin instigating large rate cuts through to 2025, and the latest NFP data would confirm this thesis. The strength of the private sector was clear from the latest ADP data this week. Thus, it was no surprise to see such a strong figure. This shows that the underlying health of the labour market remains healthier than initially thought, with private job creation still strong. The Fed will be in no rush to cut either, as the unemployment rate is still relatively low and is still quite some way off the Fed's projections of 4.4-4.5%. Moreover, average hourly earnings remain well above their pre-pandemic levels, which were low-to-mid 3%. With upside risks to energy and fuel prices coming from the current Middle Eastern conflict, the Fed are likely to take a wait-and-see approach, rather than jumping the gun too soon and risk repeating the mistakes of their predecessors in the 1970s.