8/30 Jobs report could prevent rate hike — but unlikely to ensure one
Administrator - Sunday, 30 August 2015 05:12
Jobs report could prevent rate hike — but unlikely to ensure one
A jobs report less than a month before a key Federal Reserve interest-rate decision is always a big deal, but the looming report on August payrolls probably can only move sentiment by central bankers in one direction.
That’s because the Fed, in official pronouncements, public speeches and interviews, has spelled out the conditions for lifting rates.
One is confidence (theirs) that inflation will return to its target. The other is for “some further improvement” in the jobs market.
Heading into the jobs report that will come out on Friday, it’s really the first sentence that is a mystery. Jobs growth already has been pretty good — averaging 212,000 new jobs each month this year. The unemployment rate has dropped all the way to 5.3% from a peak of 10% in 2009.
Inflation, on the other hand, is way below the Fed’s target of 2%-per-year growth for the PCE price index. In July, inflation by that measure was just 0.3%, and it’s been below target for the last three years.
There are alternative inflation measures where the miss isn’t so large, though still apparent. So-called core PCE — which excludes volatile energy and food prices — grew 1.2% in the 12 months ending July. What’s called trimmed mean PCE — an inflation measure where both the hottest and coldest price moves are removed — grew at a 1.6% clip in July, the Dallas Fed reported.
And neither of those indicators reflect the moves from export giant China in August to devalue its currency.
Inside the Fed, there’s a big debate about the direction of prices. In his interview with CNBC on Friday, Fed Vice Chairman Stanley Fischer said his confidence that inflation would return to target was “pretty high.” On the same network on the same day, Minneapolis Fed President Narayana Kocherlakota said the inflation outlook was so weak that an easing of policy should be considered.
All of which is to say is that the jobs report, short of a barnstorming number for either the headline, or for average worker earnings, isn’t likely to upgrade the Fed’s perspective of the labor market. But a bad number, by contrast, could lend credence to the camp who want to wait a bit longer before lifting interest rates.
Credit Suisse’s economists, for instance, are forecasting 180,000 jobs were added during the month.
“A payroll gain in line with our forecast probably would meet the FOMC’s ‘some further improvement’ criterion for a potential rate hike, especially if other data in the employment report also point to diminishing labor market slack,” their economists said in a research note.
The U.S. economics calendar will be full even without the jobs data.
Key releases will include the Institute for Supply Management’s manufacturing gauge, car sales, the Beige Book and trade data, and there will be speeches from Boston Fed President Eric Rosengren (a dove on interest rates) and Richmond Fed President Jeffrey Lacker (a hawk). http://www.marketwatch.com/story/jobs-report-could-prevent-rate-hike-but-unlikely-to-ensure-one-2015-08-30
Jackson Hole roundup: No clear path for Fed in September http://www.marketwatch.com/story/jackson-hole-roundup-no-clear-path-for-fed-in-september-2015-08-29