The September jobs report will be pivotal for markets. Payroll gains have slowed over the past two years, while the unemployment rate has been rising on-trend. With the Federal Reserve on the verge of more interest rate cuts, the jobs report will be a key data point informing markets of future Fed policy actions.

September Jobs Report Implications For Fed Policy

Investors, analysts, and policymakers are watching economic data releases closely for Fed implications. One of the most important economic data reports of the month will be the U.S. employment situation report released on October 4 at 8:30 a.m. ET. This report, which is informally called the jobs report by economists, has the potential to move foreign exchange, equity, bond, and commodity markets.

The unemployment rate has risen from 3.5% in September 2022 to 4.2% in August 2024. While the unemployment rate has risen, net monthly payroll gains have slowed. In August 2024, only 142,000 net new jobs were added for the month. Directional changes in September labor data will have the power to move markets, especially if the jobs report tips the balance of risks for the Fed’s dual mandate.

The Fed has a dual mandate to support full employment and keep inflation rates low and stable. While the labor market is close to full employment, prices are not yet low and stable. Additionally, recent Fed statements and remarks have acknowledged the growing balance of risks in the economic outlook, including the downside financial market risks to both parts of its dual mandate.

Elevated Inflation Data Could Slow Fed Rate Cuts

While year-on-year inflation rates have slowed, they remain above the Fed’s 2% target. August 2024 year-on-year inflation rates were 2.5% for CPI and 3.2% for core CPI, with year-on-year total PCE inflation up 2.2% and core PCE up 2.7%. These rates are unlikely to fall to the Fed’s 2% target this year. However, they have been falling on-trend, and they are likely to fall to the Fed’s 2% target next year. Given the currently elevated levels of year-on-year inflation, the Fed is likely to tread carefully in its rate cut policies.

A Fed interest rate cut of 0.25% is likely on November 7. However, a rate cut of 0.5% would be more likely if the labor market weakens significantly — or if the U.S. presidential election outcome is unknown by the time of the November 7 Fed decision.

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Potential Market Implications Of The Jobs Report

A solid September employment report with payrolls above August levels with an unemployment rate at or below 4.2% is likely to signal that the Fed can take its time with rate cuts, which would likely support the greenback and bond yields. Additionally, a solid report could still have positive impacts on equities, oil prices, and industrial metals prices because it would assuage concerns about recession.

A weak September employment report with payrolls below August levels with an unemployment rate at or above 4.3% would signal that larger interest rate cuts are more likely. This would, in turn, likely weigh on the greenback and bond yields. However, a weak report could still have mixed to bearish implications for equities, oil prices, and industrial metals prices, because downside risks could exacerbate concerns about recession.

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In anticipation of the September jobs report, a number of other labor market data releases will be watched closely this week, including September ADP payrolls, August Job Openings and Labor Turnover Survey (JOLTS) data, and weekly jobless claims.

What do you expect for the September jobs report?

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