U.S. August hiring far exceeded market expectations, easing some worries about a cooling labor market. With inflation still elevated and hiring stronger than expected, some now see a rising chance that the Federal Reserve (Fed) will raise its benchmark rate in September.
The Bureau of Labor Statistics said on the 4th (local time) that nonfarm payrolls rose by 162,000 in August from the prior month. That handily beat the 55,000 increase forecast by experts polled by Bloomberg. It was also a sharp pickup from July's 21,000 gain.
Earlier hiring figures were revised up as well. July's nonfarm payroll change was revised to a 21,000 increase from an initially reported 23,000 decrease. The June gain was also revised up to 31,000 from 20,000.
The unemployment rate was 4.1%, the same as the prior month and in line with market expectations. The number of unemployed people was about 7 million, little changed. The labor force participation rate rose slightly to 61.6% from 61.4% in the prior month.
With labor data coming in stronger than expected, financial markets again raised the odds of a Fed rate hike in September. According to the CME FedWatch Tool, the probability of a September rate increase implied by the fed funds futures market topped 50% right after the jobs report. That was up slightly from the 49% range the day before.
Ira Jersey, a U.S. rate strategist at Bloomberg Intelligence, said, "Given that this month's job gain was larger than expected and prior figures were revised up, it will be hard for the market to completely rule out a September rate hike."
When setting rates, the Fed considers both price stability and maximum employment. Recently, concerns about a resurgence of inflation have grown due to war in the Middle East and the tariff policy of the Donald Trump administration. The core personal consumption expenditures (PCE) inflation rate, a key gauge the Fed uses to assess price trends, was 3.3% in July, well above the Fed's 2% target.
In this environment, if hiring remains more resilient than expected, the Fed may have more leeway to keep rates high or move to raise them further to ensure price stability.
Still, some say it is hard to conclude that a September rate hike is locked in based on this jobs report alone. Analysts also note the U.S. labor market is nearing a so-called "no-hire, no-fire" state, where neither hiring nor layoffs are active.
Caution is also continuing inside the Fed. Christopher Waller, a governor with a permanent vote at the Fed, told Reuters the day before, "We are finally seeing signs of disinflation," and added, "If indicators released over the next two weeks show the same trend, I would support holding rates steady."
With the Federal Open Market Committee (FOMC) meeting set for Sept. 15–16, additional inflation and labor indicators to be released are expected to be key variables in the Fed's final decision.