Jobs Report Could Swing Fed's Rate Hike Decision

The US jobs report could significantly impact the Federal Reserve's September decision on interest rates. The market is currently evenly divided between another rate hike and keeping the policy rate unchanged, with a 50.4% probability of a 25 basis point increase to 3.75%-4.00%. This shift in expectations from earlier in the week highlights the uncertainty surrounding the Fed's next move.

The August employment report is expected to show around 56,000 jobs added, following a surprise decline of 23,000 in July. The unemployment rate is forecast to remain at 4.1%, while annual average hourly earnings growth is expected to slow to 3.0% from 3.2%. Markets will likely focus on the headline payroll figure, as well as unemployment, wages, and revisions to previous months.

The labour market data has been mixed this week, with private employers adding only 38,000 jobs in August, below expectations for 48,000. The JOLTS report showed job openings edging up to 7.271 million, but hiring dropped by 278,000 to 5.054 million. Weekly jobless claims remain contained, at 206,000.

The inflation and growth signals have been more hawkish, with the ISM services index climbing to 55.4 in August from 54.1. The prices-paid index rose to 72.6, its highest since August 2022, while input prices remained elevated at 71.1.