September Jobs Report Fuels Debate on Fed Rate Hike Outlook

September Jobs Report and Fed Rate Hike Outlook: A Financial Overview

Following the U.S. Bureau of Labor Statistics' release of a stronger-than-anticipated September non-farm payroll report, several Wall Street institutions have increased the probability that the Federal Reserve will hold off on raising interest rates at its next meeting.

Echoing a similar move by Morgan Stanley, JPMorgan Chase withdrew its prior forecast of a 25-basis-point rate cut in December. The bank still anticipates the next rate reductions will occur in January and April of the following year.

Contrasting Views on a Rate Hike Pause

In contrast to these projections, Kevin Hassett, Director of the White House National Economic Council and a Fed Chairman candidate nominated by President Trump, expressed concern that the Federal Reserve pausing rate cuts at this juncture would be “a very bad time.” He cautioned that such an action would be detrimental given the drag that the government shutdown has already placed on fourth-quarter economic growth.

Hassett estimated that the government shutdown would shave 1.5 percentage points off fourth-quarter GDP. He further noted that September’s Consumer Price Index (CPI) revealed better-than-expected inflation performance.

The Impact of Government Shutdown on Economic Growth

In an interview with Yahoo Finance, Hassett emphasized that “(Pausing rate cuts) is not wise, and there are really big headwinds in the fourth quarter.” He argued that the September jobs report alone is insufficient to offset these other factors.

Hassett also revealed that airline executives have complained about the disruptive impact of the government shutdown on travel, leading many Americans to forego Thanksgiving travel plans.

He concluded, “So I don’t think we fully understand how disruptive this shutdown is going to be to fourth-quarter GDP. We’re super optimistic about the future, but I think that the Fed pausing at this point would be a very bad decision.”

Analyzing the September Jobs Numbers

September saw a rebound in job growth, with the addition of 119,000 jobs, far surpassing economists’ expectations of 51,000. August’s job figures were revised down from an initially reported gain of 22,000 to a loss of 4,000. Job growth is exhibiting a volatile trend: negative in June, a rebound in July, a dip again in August, and culminating in a rebound in September.

Hassett pointed out that while most of the job growth stemmed from the healthcare and education sectors, construction jobs were also beginning to increase as new factories broke ground, spurred by the government tax bill and a desperate need for workers.

“The fact that the new factories that we’ve been expecting over the next year or two are starting to break ground is a really positive signal going forward,” he said.

Slight Uptick in Unemployment Rate

While job growth rebounded, the unemployment rate ticked up slightly from 4.3% to 4.4%—a level to which it has been slowly converging over the past few months. Hassett explained that the uptick in unemployment is due to an increase in labor force participation, with more workers who had been waiting on the sidelines beginning to look for work.