The Fed ought to patch the wound left by August’s jobs report– www.cnbc.com
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Excerpt:
At this moment in the U.S. economy — when interest rates are higher than usual and inflation still above the Federal Reserve’s 2% target — the jobs report is rather like an injury. You want it bad enough, like a gash, to elicit sympathy from others, but not so serious that it rends flesh and exposes bone.
The August jobs report was more like the latter. New payrolls came in more than one-third below expectations. On the bright side, even though the unemployment rate rose to 4.3% from 4.2% the month prior, it was largely because of a 436,000 increase in the size of the labor force — meaning it’s not so much layoffs but more job seekers that caused the increase in unemployment.
That said, the wound to the U.S. economy was severe enough that traders expect the Federal Reserve to administer some tender loving care soon. According to the CME FedWatch tool, the futures market, as of Sunday night stateside, has priced in an 8% chance of a supersized 50 basis points rate cut at the Federal Reserve’s September meeting. The probability was 0% a month ago. And a 25 basis points reduction is all but certain.
The prospect of such soothing by the central bank helped investors bear the pain of the jobs report stoically. Major U.S. indexes fell Friday, but only moderately. The Nasdaq Composite closed around the flatline, supported by strong bones in the tech sector.
If the Fed cuts rates later this month — a move it’ll almost certainly make — it’ll be a stitch, just in time, to save investors more than a dime.