unemployment rate increases
US job market cools – Fed likely to extend interest rate pause
09/01/2023 4:32 p.m
In the US, more people were unemployed in August. At the same time, the number of new jobs was retrospectively corrected downwards. For investors, there are enough signs that the central bank’s interest rate is having an effect on the labor market. They now expect the Fed to postpone the next hike.
In the US, unemployment rose significantly in August. At the same time, the boom in the job market ebbed. Both give the US Federal Reserve room to pause interest rates. According to the Department of Labor, the unemployment rate rose from 3.5 to 3.8 percent. It’s the highest rate in a year and a half. The number of unemployed rose by a good half a million to 6.4 million.
Meanwhile, the data from the job market was mixed. With 187,000 new jobs outside of agriculture, the companies created more jobs than expected. However, the increase in the two previous months was revised downwards by a total of 110,000 jobs. The rise in wages slowed down. Only 105,000 new jobs remained for June; slightly more than the magnitude that is considered sufficient to provide jobs for the population.
The job market had been largely robust until recently. Many companies complain about a labor shortage. The labor market is also important for the interest rate policy of the US Federal Reserve. On the futures markets, a rate hike on September 20 is now practically no longer expected, and the probability of this happening in November is estimated at just 35 percent. The data largely left investors in the stock markets cold.
“Only interest rate pause button, but not interest rate freeze”
“The data should strengthen the Fed in its view that its fight against an overheating of the labor market is slowly showing success,” said economist Bastian Hepperle from the Hauck Aufhäuser Lampe bank. However, the decline in inflation is only progressing slowly, also because rising service prices are slowing down. “The Fed can therefore only press the interest rate pause button, but not the interest rate freeze button.”
The US Federal Reserve has hiked interest rates from near zero to a range of 5.25 to 5.50 percent since early 2022 in a bid to dampen high inflation and cool the overheated labor market. She wants to make it dependent on the data as to whether she will follow up on September 20th or not.
She looks in particular at the inflation and labor market figures. “The decline in vacancies to 8.8 million in July had already indicated that the long-awaited weakening of the labor market is now becoming more apparent,” said HQ Trust chief economist Michael Heise. “The new data supports a rate hike by the Fed in the upcoming meeting and probably also in the October/November meeting.”
With an eye on inflationary pressures, the central bank is also monitoring wage developments. Average hourly wages increased by 4.3 percent in August over the year. Experts had an increase of 4.4 percent on the slip. The increase is not yet compatible with the Fed’s two percent inflation target. “It is clear, however, that wage developments will react to the cooling of the labor market with a delay,” judged HQ Trust economist Heise.