Solid jobs report gives ‘license’ to Powell to pause rate cuts: former Fed advisor

Scott Gamm
Reporter

Friday’s solid jobs report gives Federal Reserve chair Jerome Powell some leeway to hold off on additional rate cuts heading into the central bank’s next meeting later this month.

That’s the assessment from Danielle DiMartino Booth, a former Fed advisor and CEO of Quill Intelligence. Booth is also author of the 2017 book Fed Up: Why the Federal Reserve is Bad for America.

“This is a solid report that gives license to Jerome Powell and others on the FOMC the ability to stand pat on their hawkish stance headed into the October 30th statement,” Booth said. “A fresh 50-year low on the unemployment rate provides plenty of cover to not cut rates.”

U.S. President Donald Trump looks on as Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve, speaks at the White House in Washington, U.S., November 2, 2017. REUTERS/Carlos Barria

The Fed cut interest rates by 25 basis points in September, even though various strategists and market participants had called for a deeper 50 basis point cut. Even St. Louis Fed President James Bullard dissented at the Sept. cut in favor of the more potent 50 basis point cut. The Fed also cut rates by 25 basis points in July, after raising them four times in 2018.

The market seems to agree with Booth’s analysis of fading rate cut pressure. According to CME futures data, investors are pricing in a 78.6% chance of an October rate cut, compared to 85% earlier this morning prior to the release of the jobs report.

The economy added 136,000 jobs in October. While that was less than what Wall Street was expecting, the unemployment rate fell to 3.5% - a 50 year low. Plus, the readings for August and July were revised upward.

“Was this a perfect report? There is no such thing,” Booth said. “Private sector job creation has down-shifted to a three-month average of 119,000, nearly 100,000 lower than 2018’s average of 215,000. And private job growth was revised down by 7,000 in July. But this was more than offset by an upward revision of 37,000 for August.”

Wage growth

In terms of wages, average hourly earnings only grew 2.9% year-over-year as of September, reversing from the 3% plus year-over-year run rate that had persisted for well over a year.

“As for wages, while most focus on the slowing in average hourly earnings, a more realistic take is average weekly earnings, otherwise known as a paycheck,” Booth said. “Notably, growth in this metric has slowed even more dramatically, sliding from a 4.0% rate in June 2018 to 2.6% this September.”

AMS

Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

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