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Economists agree: The Fed will move in September
(BLS)
It's time for the Federal Reserve to raise interest rates.
On Friday, the August jobs report showed that nonfarm payrolls grew by 173,000 while the unemployment rate fell to 5.1%.
The headline job gains were less than expected, but the unemployment rate drop was larger than had been forecast and put this measure right in the middle of the range — 5.2%-5.0% — where the Fed considers the economy to be at "full employment."
And following this report, economists across Wall Street think the time is now for the Fed to raise rates.
"The jobs report delivers, hits its numbers, and Fed liftoff is assured," Chris Rupkey, economist at MUFG Union Bank wrote in a note to clients following the report. "Our long national nightmare is over."
Rupkey added: "Net, net, the monthly jobs report delivers the goods, the report is a solid one and it qualifies as the some further improvement in the economy that [the] Fed is waiting for before raising rates. We would be shocked if the Fed delays liftoff any further. September 17 is their date with destiny."
(BLS)
Maury Harris at UBS also thinks this report puts September on the table for a Fed rate hike.
"Today's employment report supports our view that the Fed is likely to begin their rate hike cycle at the September 17th FOMC meeting," Harris writes. "Payroll gains remain healthy enough and the unemployment rate inched below the Fed's year-end target. Although a lot can still happen in the nearly two weeks before the meeting (and equity market moves remain a threat), this report keeps the Fed on track for tightening."
PNC economist Stuart Hoffman shares Harris' cautious optimism.
"If stock prices remain far less volatile (VIX in mid 20s) and hold the substantial rebound from the closing lows on August 25; if WTI oil price remains above $40 per barrel, the dollar/euro stays above 110, the dollar/yen stays below 124 and the dollar/yuan stays below 6.45; and if the August retail sales report shows solid auto and back-to-school spending as we noted above, then a September 25 bps funds rate hike is more likely than not," Hoffman writes. "Admittedly, those are a lot of Ifs which is why the FOMC's decision is going to come down to the wire. But like Tom Brady will now say 'ready, set, hike' on September 10 in the opening game against the Steelers, the FOMC should say the same at the conclusion of their meeting on September 16- 17!"
On Friday morning, stocks were lower across the board, with the Dow down 250 points, the S&P 500 off 27, and the Nasdaq down 46.
"If Fed were meeting today I would say 55-60% chance that they would go for a hike and hope that the accompanying dovish commentary would ease the financial market stress," Citi's Steven Englander said.
At its July meeting, the Fed kept interest rates unchanged, but the key passage on the Fed's future plans read (emphasis added): "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."
And so the read-through on Friday's report, coupled with the upward revisions to July's jobs report, is that "some" improvement has been seen.
On the inflation front, those arguing that the Fed will — or at least should — raise rates in September will likely take their cue from Stanley Fischer, the Fed's vice chair, who said last week that, "there is good reason to believe" inflation will move higher.
And all of this follows a speech just before the jobs report from noted Fed hawk Jeffrey Lacker, president of the Richmond Fed and voting member of the FOMC, who said, "It's time to align our monetary policy with the significant progress we have made."
In other words, the time is now.
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