Surprising Turn in the Job Market: Fed Could Consider Drastic Interest Rate Cuts

In an unexpected development, Pantheon Macroeconomics forecasts that the Federal Reserve might respond with significant interest rate cuts, despite recent labor market data, to mitigate weakness in the labor market. While the majority on Wall Street are celebrating the impressive September jobs report, some voices express skepticism about an actual boom. Pantheon Macroeconomics warns against taking the job creation numbers, which exceeded expectations, at face value, as they are likely to be revised downward. Currently, the report indicates that the U.S. economy was able to create 254,000 new jobs in September, significantly surpassing the consensus estimate of 147,000. The unemployment rate fell to 4.1%, despite an expected value of 4.2%. However, Pantheon noted that only 62% of businesses responded to the survey on time—a noticeable decline compared to the previous year's rate of 68% and the average of 77% in the 2010s. Pantheon argues that particularly small businesses might put their hiring on hold, making a later revision of the figures likely. Supporting indicators such as the NFIB hiring index, which suggests only moderate private employment growth of 75,000 in the winter, also raise questions. Meanwhile, the latest JOLTS data from Deutsche Bank also casts doubt on the actual tightness of the labor market, as the number of job openings remained largely unchanged at 5.3 million. Pantheon reminds that labor market data is often revised downward, as was the case earlier this year when almost 818,000 fewer jobs were reported than initially stated. Despite these reservations, Wall Street celebrated the jobs report as a turning point that could make interest rate cuts less likely. Nevertheless, Pantheon maintains its forecast that the Fed will resort to prompt, repeated rate cuts of 50 basis points to support the weakening labor market.