Better-than-expected nonfarm payrolls put pressure on Fed to cut rates

• Trump admin adds further pressure, but private payrolls’ solid foundation may tip scales toward no cuts
  
  ISTANBUL

Nonfarm payrolls in the US rose 64,000 in November, above estimates, and the unemployment rate reached its highest since September 2011 at 4.6%, putting pressure on the Federal Reserve to cut rates.

Employment in the US fell 105,000 in October, while the decline in nonfarm payrolls in August was upwardly revised from 4,000 to 26,000.

The rise in employment for September was downwardly revised from 119,000 to 108,000.

Average hourly earnings rose 0.1% month-on-month and 3.5% year-on-year to $36.86 over the same period.

Rising unemployment and downward revisions in August and September data caused divergence in the Fed’s monetary policy expectations, despite better-than-expected nonfarm payrolls.

Rate cuts to come to fore

Zafer Ergezen, a futures and commodity markets expert, told Anadolu that the Fed is on the lookout for subsequent data after employment figures.

Ergezen stated that the Fed may deem the rise in unemployment negatively, and be prompted to feel pressured into cutting rates, while added pressure may come from the US President Donald Trump’s administration in particular.

“I expect a period of rate cuts to come to the fore, as the Fed chair is expected to be changed,” he said.

Labor market slowdowns pressure Fed to cut rates further

James Knightley, chief international economist at the ING Group, told Anadolu that the slowdown in the labor market continues, putting more pressure on the Fed to cut rates.

“Given Fed Chair Jerome Powell's comments last week that they think payrolls are being overestimated by 60,000 per month, it indicates that the Fed has to acknowledge the economy is now losing jobs, which will push the doves to continue making the case for rate cuts,” he said.

Knightley stated that the doves will continue to push for rate cuts due to these developments.

“The unemployment rate is now higher than they projected just last week, and with little sign of an imminent turnaround, we continue to favor a 25bp (basis points) cut in March and a further cut in June with the risks skewed towards more aggressive action,” he added.

Rising private payrolls may influence Fed policy

Stephen Brown, deputy chief North America economist at Capital Economics, told Anadolu that the rise of 121,000 in private payrolls in October and November was over expectations.

“That positive momentum suggests that the Fed will not be overly concerned by the upside surprise in the unemployment rate to 4.6%, from 4.4% in September, providing we see unemployment stabilize in the coming months,” he said.

Brown stated that the unemployment rate remained above the Fed’s 4.5% projection for the fourth quarter.

“But, given that private payroll gains appear to have found a floor, we doubt that the modest upside surprise will be enough for the FOMC (Federal Open Market Committee) to consider resuming interest rate cuts at the next couple of meetings,” he added.

Oliver Allen, senior US economist at Pantheon Macroeconomics, told Anadolu that the labor market remained weak, but not at a level to require the Fed to resume easing its policy in January.