US Jobs Report Fuels Rate Hike Bets, But Inflation Data Takes Center Stage

A surprise jump in US hiring last month has bolstered the case for the Federal Reserve (Fed) to raise interest rates when they meet later this month, but a hike is still not guaranteed. The nonfarm payrolls in August topped all estimates in a Bloomberg survey, and the unemployment rate held steady at 4.1%. However, analysts continue to expect the next Fed rate decision will hinge on inflation data due next week.

US President Donald Trump revived his pressure campaign on the US central bank, demanding in a social media post that the Fed lower rates, even as investors boosted bets that they will raise them this month. The probability investors assigned to a rate increase this month jumped to just above 60% from about 50%, based on federal funds futures pricing.

The jobs report showed nonfarm payrolls increased 162,000 last month and July's job losses were revised away, suggesting the labour market has more momentum than previously thought. However, Olu Sonola, head of US economics at Fitch Rating, called the jobs report 'unequivocally strong', but added that 'The real event risk is next week's CPI report. That is the print capable of moving the needle.'

With Fed officials concerned by persistently high inflation, but divided over how monetary policy should respond in the near term, new evidence of price pressures could tilt the Federal Open Market Committee into a rate hike. Cooler reports are likely to keep the Fed on hold, as it's been through five previous meetings this year.