Financial markets slashed the odds of a Federal Reserve rate hike next month after a July jobs report showed the U.S. economy shed 23,000 positions. But several Fed officials spent the week arguing inflation, still running above target, keeps a hike on the table.
The U.S. economy lost 23,000 jobs in July. Futures markets responded by cutting the odds of a hike at the Fed's September 15-16 meeting to a worse-than-even chance, down from likelier-than-not before the report. The unemployment rate ticked down to 4.1% from June's 4.2%, but the decline reflected workers leaving the labor force rather than new hiring.
The Fed held its target range steady at 3.5% to 3.75% last week, with three officials dissenting in favor of raising rates. The presidents of the Kansas City and St. Louis Fed banks said this week they had also argued for higher rates at last week's meeting. Richmond Fed President Thomas Barkin called the report "very consistent with how I've been seeing the labor market".
The Fed's preferred inflation gauge, the personal consumption expenditures price index, rose 3.7% year-on-year in June, well above its 2% target. New York Fed President John Williams said it would be appropriate to act if inflation isn't on track to return to that level.
That debate over a possible rate hike has now spilled from the Fed itself to Wall Street's economists. Omair Sharif of forecasting firm Inflation Insights said he isn't sure the jobs miss will move the needle for a Fed watching inflation data much more closely, adding it still seems poised to hike if the July and August inflation prints come in firm. BlackRock chief investment officer Rick Rieder likewise said nothing is radically changing and the Fed will keep focusing on inflation over jobs.
Citibank's economists disagreed, calling hikes unlikely and naming an October rate cut as their base case. The next move hinges on whichever way the July and August inflation prints break.
Source: Investing.com
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