Many traders believe that today is a big day, and it will actually give them some clues about September Federal Reserve decision on whether to raise the interest rate again or not, depending on the upcoming Jobs Report, which will be released later today.
However, this is not the case. The Federal Reserve’s decision is not connected with the Jobs Report. There are too many factors involved, therefore, whatever today’s NFP outcomes are, the Fed is unlikely to raise rates in September, and maybe even in December as well.
Let’s discuss the possible scenarios for the US Jobs Report and then we will explain why the Fed is likely to keep the rates on hold over the coming months.
At 12:30 GMT+ eyes will turn toward the US as we will be waiting for Non-Farm Employment Change, Unemployment Rate, and the average hourly earnings.
The estimates point to a softer report in August compared to July. The Non-Farm Employment Change is expected to add around 180K new jobs in August compared to 209K new jobs in July, which would be the lowest reading in almost three months.
At the same time, the estimates point to a stabilization in Unemployment Rate around 4.3%, which remains the lowest reading since the financial crisis.
Moreover, traders will focus on the average hourly earnings. The MoM is expected to rise by 0.2% compared to 0.3% last month. Yet, the most important number is the YoY Average Wages, which set to rise for the first time in two months toward 2.6% up from 2.5%. Yet, it remains at the lowest level of this year.
What Matters The Most
The Average Hourly Earnings should the most to be watched today, as the wages have been rising, but well below the Federal Reserve’s target since the beginning of the year.
The YoY has been disappointing as well, therefore, another disappointment would even eliminate the idea of unwinding the Fed’s balance sheet this year. Therefore, even if the NFP and the unemployment rate comes in better than expected, while the wages disappoint, investors will keep an eye on wages, as higher wages are needed to lift inflation.
Why The Fed Won’t Raise Rates Anyway?
Some would say, a better jobs report would let the Fed raise the Fed Fund Rate one more time before the end of this year.
However, it’s not about the jobs report as much as it’s all about inflation. Forget about the CPI and the Core CPI. The Federal Reserve always looks at the Core PCE Price Index as the right inflation measurement.
Below are the Core PCE Price Index outcomes since the beginning of this year:
At the beginning of this year, Core PCE Price Index was around 1.9% and, now we are at 1.4%. This is the lowest inflation level of this year.
Many of the Federal Reserve members noted at their latest meeting that they are concerned with inflation not rising despite all of the Federal Reserve’s measures. Moreover, Fed members also want the Fed to Hold on raising rates until they see some inflation signs.
As noted in our previous reports, the US Dollar is still trading within a solid long-term support between 91.80 and 93.0.
Today’s Jobs Report might be the catalyst and the answer for the next move. A better jobs report would mean that the US Dollar upside retracement is likely to continue over the coming weeks.
On the other hand, a disappointing jobs report would open the way for another leg lower, probably below this week’s lows, and may open a new channel for the down trend to continue for longer.