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No matter what the jobs report says, the Fed still has a major problem
(REUTERS/Kevin Lamarque)
Federal Reserve Chair Janet Yellen.
No matter what happens on Friday, the Federal Reserve still has a communication problem.
The August jobs report is expected to show nonfarm payrolls grew by 217,000 last month; the unemployment rate is expected to fall to 5.2%.
The question hanging over markets ahead of this report is whether these numbers will be good enough to compel the Fed to raise interest rates at its September meeting, a move that would mark the Fed's first policy-tightening in over 9 years.
And this report would likely indicate a labor market more than ready for a rate hike.
But in a note to clients on Friday, Deutsche Bank strategist Alan Ruskin wrote, "The Fed has a communications dilemma which Friday’s payrolls data is unlikely to resolve."
As it currently stands, markets aren't giving a September rate hike much more than a 30% chance of happening. And so while some Fed officials, namely Fed vice chair Stanley Fischer, have said the Fed need not wait for inflation to perk up before raising interest rates, recent communications from the Fed haven't been particularly hawkish.
And as The Wall Street Journal's top Fed-watcher Jon Hilsenrath wrote earlier this week, raising rates in September without a major speech from Fed chair Janet Yellen telegraphing the move would be a break in tradition from the post-financial-crisis Bernanke/Yellen Fed.
But of course, raising rates would be breaking with the Fed's recent course anyway. So perhaps history won't repeat this time around.
"That the door is apparently still ajar to a rate hike in September is testimony to how committed the Fed had been to getting rates off 'zero,' before the recent bout of financial volatility and conditions tightening interjected itself," Ruskin wrote.
"If the payrolls data is soft, a September hike is surely off. How could Janet Yellen stand-up and justify the first rate hike in 9 years, with a few signs of lost growth momentum; a marked softening in imported inflation pressures; minimal wage pressures; a rise in financial market volatility, a significant tightening in financial conditions; and an uptick in risk premia that is more in control of China policymakers than the Fed?"
Almost anyway the Fed cuts it up, what happens next will be a surprise.
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