A Labor Department report released on Friday showed that U.S. employers added just 29,000 jobs last month, versus economists' expectations for 90,000, strengthening policymakers' inclination at the Federal Reserve not to deliver a second consecutive interest-rate hike at their Oct. 27-28 meeting.
Slower hiring strengthens case for patience
Job growth came in weaker than expected, while employment figures for August were revised lower, giving those inside the central bank who favor patience an additional argument for waiting for more data before making a new decision on borrowing costs.
The Federal Reserve raised its policy rate by a quarter of a percentage point last month, aiming to put inflation on a “faster” path toward its 2% target. Officials are currently weighing the risk of moving too slowly to curb price pressures against the potential damage to the labor market if they act too quickly.
Inflation keeps options open
Estimates for the rate path could change after new data are released, most notably the Consumer Price Index, which is due before the policy meeting. Data released this week showed that inflation, according to the measure used by the Federal Reserve, stood at 3.4% in August, above the 2% target but below economists' expectations.
Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said the latest jobs data showed that the labor market was stable, adding that the inflation side of the Federal Reserve's mandate remained the problem and required close monitoring.
There is ample room to put any option on the table
Federal Reserve Chair Kevin Warsh refrained from commenting on the risks he sees or the likely path for interest rates, while Federal Reserve Vice Chair Philip Jefferson and New York Fed President John Williams said they wanted to see more data before considering any further action.
Investors favor action in December
An analysis of CME Group's FedWatch tool showed that investors see a 25% probability of an interest-rate hike in October, compared with a very high probability of a hike in December.
After raising short-term borrowing costs last month, policymakers had indicated that at least one more increase could be delivered by the end of the year if the war in Iran and other shocks that had pushed inflation higher continued.
With efforts to reach an agreement to end the war stalled and trade tensions remaining a focus, expectations as of the start of the week pointed to a rapid series of rate increases. That coincided with long-term bond yields rising to their highest level in 24 years on Thursday, while mortgage rates climbed above 7%.
