NFP to guide Fed’s Next Rate Hike

Written on 05/10/2022 by Lukman Otunuga, Senior Research Analyst at FXTM

There’s a lot going in markets right now. In amongst the currency interventions, crisis management QE, QT that wasn’t, energy crisis and systemic risk, we can’t forget it’s the first Friday of the month. For traders, that means only thing on the calendar which is the US non-farm payrolls report. This is the last major jobs data before the next Fed meeting at the start of November. The figures will definitely be a major part of the decision making so grab the popcorn and buckle up.

Consensus expectations are for US jobs growth to slow to 250k from 315k in August for the headline print. Analyst forecasts currently range between 175k and 350k. The jobless rate is seen unchanged at 3.7% while there will be particular attention on the average hourly earnings.

Wage growth month-on-month is projected to rise by 0.2% again in September, though forecasts are quite wide at 0.2-0.5%. The annual number is forecast to rise by 5.1%, a tick lower than the previous figure. With the equally important September inflation data from the US released next week, these average hourly earnings will be scoured for clues about the direction of price pressures.

Still Very Tight Labour Market

We note that other recent jobs data has been grabbing the headlines. The latest US vacancy rates, in the form of the JOLTS figures, slowed sharply this week with a drop of one million vacancies. This fall was way more than analysts expected and was added to the list of the “pivoters” who think and hope the Fed will stop hiking rates sooner than thought.

But the jobs market remains tight with four million more job vacancies than there are unemployed Americans to fill them. If you’ve been across the pond recently, you can’t fail to notice the amount of “We’re hiring” signs everywhere! The more frequent initial jobless claims data also shows data still very low by historical standards. In fact, there’s been nine straight weeks of numbers below expectations and the most recent print hit the lowest level since April. These figures are meant to go up in recessions!

The Fed and Jobs

A weaker labour market is needed by the Fed to get inflation back to its 2% target. The latest median projection in the Fed’s recent September update saw unemployment rise to 4.4% in 2023 from 3.65% in August. Economists reckon that equates to over a million job losses which is the pain Fed Chair is willing to put the U.S through to tame inflation.

With the chances of another jumbo-sized 75bp rate hike next month oscillating between 50% and 70% over recent weeks, a headline print above 300k and solid wage growth may seal the deal for another historic big increase. This would be bullish for the dollar while growth stocks especially could roll over quickly back to recent lows as “pivot” talk evaporates.

For more information, please visit: FXTM

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.