The latest jobs report has somewhat quieted the small crowd calling on the Federal Reserve to roll out a jumbo interest rate cut later this month.
It’s now roughly a coin toss for Wall Street whether the Fed cuts by a half point or a quarter point: As of 9 am ET, investors saw a 51% chance of a half point cut, versus a 49% chance of a quarter point, according to the futures market.
US employers added 142,000 jobs in August, a sharp pickup from July’s downwardly revised total, and the unemployment rate edged lower to 4.2% from 4.3%. Those numbers are nothing to scoff at, showing that America’s job market is, at the very least, holding up for now.
The bar for the Fed to cut rates by a jumbo-sized half point at the conclusion of its policy meeting on September 18 was already high — and it depended on a disastrous August jobs report.
That bar was not met, but that’s certainly good news for American workers. While an ailing job market would usher in lower borrowing costs, that would also mean employers are laying off workers.
“A softer-than-expected jobs report may support those in favor of a 0.5% rate cut on September 18, but the jury is likely still out,” Chris Larkin, managing director, trading and investing, at E-Trade, said in a note Friday.
“For now, a 0.25% cut remains the baseline case for a cautious Fed. In the meantime, markets are likely to be sensitive to any other data that suggests the economy is cooling off too much.”