US Labor Market Surprises with Strong Growth: Challenges for the Fed

The stock markets on Wall Street are reacting to unexpectedly positive labor market figures. In September, the U.S. economy reported an increase of 254,000 jobs, significantly surpassing the forecast of 150,000. The unemployment rate slightly decreased to 4.1%, also below the expected 4.2%. Robert Sockin, Chief Economist at Citi, and Peter Tchir, Head of Macro Strategy at Academy Securities, analyze the implications for the U.S. Federal Reserve's interest rate decision. Sockin highlights that the figures are consistent with a cooling labor market dynamic and strong consumer presence. This could prompt the Fed to continue its rate cuts by 25 basis points, as the pressure to act swiftly eases. However, Tchir points out the 4% year-on-year wage growth as problematic for the Fed. He expects that the Fed could implement another 25 basis point rate cut by the end of the year, but the final decision depends on further labor market data. He currently forecasts a terminal rate of 3.5%. Sockin warns of potential risks with a view to Brazil: While the Fed should continue its rate cuts, stable inflation and economy could lead to a rate hike if the cuts are paused. Tchir recommends focusing more on inflation. Stimulus measures in China could impact commodity prices and challenge the balance. He concludes with the consideration that the neutral interest rate may be higher than initially assumed.