The US labor market performed significantly better than projected. A staggering 254,000 new jobs and a fall in unemployment to 4.1% quashed speculations about a major cut in interest rates by the Fed in November. Consequently, the baseline scenario at the moment is moving by 25 bp. The market adjusted its valuation, due to which the dollar gained in value and gold was significantly discounted, but still remains above 2630 USD. The CME FedWatch index only signals a 10% probability of a larger change in rates by the FOMC.
The result, about 100,000 more than Bloomberg’s consensus forecast, is quite considerable, hence the market reaction needed to be correspondingly larger. Even Goldman Sachs’ optimistic forecast of 165,000 jobs was decisively beaten, not to mention Citibank’s pessimistic estimates (75,000 jobs). Also worth noting is the fact that the previous figure was revised (from 142,000 to 159,000), this time not downward but upward. The fall in unemployment is another factor indicating that a recession is far off.
Wage growth, a crucial index for assessing inflationary pressure, rose to 4% year-on-year, from 3.9% in August. On a monthly basis, wages increased by 0.4%, which is consistent with August’s results.
The critical question before Friday’s report was published was whether the data would reflect a significant cooling off in the labor market, which could prompt the Fed to another major reduction in interest rates. The better-than-expected employment report makes it less likely that the Fed will act with the same “urgency” as during the September meeting, when the central bank lowered interest rates by half a percentage point.
After the report was published, the market estimated about a 10% chance of a 50 bp reduction in interest rates in November, a substantial decrease compared to 53% chance a week ago, according to the CME FedWatch tool.
Besides a strong dollar, falling gold prices, and rising US bond yields, stock market indices also reacted. Good data is currently good news for Wall Street. The economy is strong, and the Fed will nevertheless ease policies, albeit at a slower pace.
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Source: https://ceo.com.pl/rynek-odrzuca-ciecie-stop-proc-o-50-pb-przez-fed-71436
