Jobs report should not “fully take” 50-bp Fed cut in November off the table

Investing.com — The nonfarm payrolls report on Friday “should not fully take” a jumbo Federal Reserve interest rate cut at its November meeting “off the table” despite some traders recently paring back bets of a jumbo reduction, according to analysts at Bank of America.

Instead, the figures should leave market pricing “relatively split” between 25 and 50 basis points, they argued.

In a note to clients, the analysts said they expect the US economy to have added 150,000 roles in September, while the unemployment rate is tipped to match the prior month’s level of 4.2%.

“The Fed would likely view such data as in-line with their forecasts,” the analysts wrote. “Our base case would see the market modestly pare back Nov[ember] cut expectations but still retain some optionality of a 50[-basis point] cut.”

While investors are likely to focus heavily on labor market data in the weeks before the Fed’s upcoming meeting, they must also acknowledge that cooling inflation numbers “could also support” another super-sized cut, the analysts added.

Last month, the Fed slashed rates by half a percentage point, a move that officials later argued stemmed from a desire to bolster labor demand during a time of subsiding price pressures.

On Monday, Powell signaled that the Fed would likely opt for more traditional quarter-point interest rate cuts moving forward, but stressed that the future path of borrowing costs is not on a preset course. Powell also said the rate-setting Federal Open Market Committee is not “in a hurry to cut rates quickly.”

He defended last month’s larger cut as a reflection of the FOMC’s “growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate economic growth and inflation moving sustainably down to 2%.”

US job openings unexpectedly increased slightly in August, potentially indicating some resilience in cooling labor demand in the third quarter.

The closely-monitored Job Openings and Labor Turnover Survey showed that available positions, a proxy for labor demand, rose to 8.040 million on the final business day of August, climbing from an upwardly-revised tally of 7.711 million in July. Economists had predicted the so-called JOLTS report on Tuesday would dip marginally to 7.640 million.

In July, the figure slipped to its lowest mark in three-and-a-half years, which was seen as a possible sign that the US jobs market was losing steam — albeit in an orderly fashion.