This is a blowout US jobs report that firmly hands the hawks on the FOMC something to chew on. The sharp pick-up in hiring suggests that the labour market isn’t just refusing to cool, but is actively gathering pace, and there is certainly nothing in the data that would, in isolation, dissuade Fed officials from tightening policy further.
Kevin Warsh stoked bets for a September hike with his hawkish turn at Jackson Hole, yet his well-documented aversion to forward guidance means we’re taking that with a pinch of salt. We continue to favour a hold for now: Treasury yields remain elevated, and Warsh himself has argued that this is doing much of the Fed’s tightening for it. Inflation expectations also remain well anchored, and raising rates is in any case a blunt tool for what is still a largely supply-side problem.
Futures are now back assigning around a 60% chance of a move at the Fed’s September meeting, though with focus firmly on inflation, we’d caution against reading too much into today’s report. Next Friday’s CPI data should carry far more decisive weight, and could prove make-or-break for the September decision – a hot print could cement the case for tightening, while a soft one may let the FOMC kick the can down the road. The dollar isn’t waiting to find out, with EUR/USD trading back below 1.16 after today’s data.
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