US payrolls far exceed forecasts

Strong jobs figures raise some questions over the likely path of US interest rates following the Fed’s outsized September cut.

04 October 2024

Inflation is over, right? Well, not according to the latest US non-farm payrolls figures, which showed that the US economy added a cool (or rather hot) 254,000 jobs in September, with wages growing by fully 4.0% on the previous year and unemployment falling to 4.1%. For the Federal Reserve (Fed) this is awkward, having just cut rates by 50 basis points in what looked by many to be a necessary move at the time but which today is looking a bit more like a panic one.

The timing given the geopolitical context could not be worse. When asked if Israel was considering hitting Iranian oil installations, US President Biden yesterday did not deny it. Crude oil futures have now shot up to USD 74/barrel, not yet at the level of discomfort but in a direction which, when added to the US jobs figure, builds a case for arguing that inflation is not actually done yet after all. In such a context, further aggressive rate cuts could start to look like a mistake and so the Fed will be parsing the data with even more rigour between now and their next Federal Open Market Committee meeting on 6 November. The perennial challenge they face though is that whatever they say about being data-dependent, the impact of monetary policy is lagged, creating a duration mismatch between today's data and the main policy instrument deployed to address it. For now though, US stock markets seemed to like what was in front of them. The case for a soft (or indeed no) economic landing seems almost assured, whatever happens with inflation and monetary policy.