Commentary: cooling US labor market
Despite worse-than-expected macroeconomic releases, global equity markets delivered solid gains during the past week. The main catalyst was a sign of loosening in the US labor market that caused the downward revision of the US inflation expectations. While non-farm payrolls came in slightly higher than expected, the unemployment rate reached a 17-month high of 3.8% in August (up from July’s 3.5%), as nearly 740,000 people entered the workforce and increased the participation rate to 63%. In addition, the growth rate of wages was the lowest in past year (0.2% m/m vs 0.3% forecast). Overall, this latest release shows cooling in the US labor market which is a necessary precondition for reducing inflation to 2.0% target.
In effect, the market-implied probability of the Fed hike on September meeting declined from 22% to a mere 6%. Dovish signals came from Fed representative as well, as Atlanta Fed President Bostic described the current base rate as “appropriately restrictive”. Overall, as estimated by CME FedWatch, the probability that the Fed would leave the interest rates unchanged in 2023 rose from 45% to 60%.
