September’s mixed jobs report injected yet more uncertainty into whether the Federal Reserve will cut interest rates at its December meeting, a decision that has become increasingly fraught as divisions between officials have deepened over how to respond to weakness in the labor market and rising inflation.
Policymakers who were inclined to support standing pat at the meeting will be able to point to the 119,000 positions added for the month, far stronger growth than economists had expected. But the rise in the unemployment rate to a four-year peak of 4.4 percent will help bolster policymakers who favor a cut.
“This isn’t going to change anybody’s mind,” said David Seif, chief economist for developed markets at Nomura.
Traders in federal funds futures markets slightly raised their bets that the central bank would end up cutting interest rates next month, although the odds are still below 50 percent.
The September jobs report was released nearly two months late because of the government shutdown. It has become one of the most important economic releases that policymakers at the central bank will receive before they vote on interest rates at their next two-day meeting, which takes place on Dec. 9-10. The shutdown, which stretched on for over 40 days and was the longest on record, delayed a raft of other crucial reports, some of which will not come out until after the Fed’s decision.
The Fed will get some other data before its policy decision, including September’s retail sales figures, data tracking prices for goods and services that companies use to make products as well as statistics related to job turnovers. Only part of October’s jobs report will be released alongside November’s data, which now is scheduled for Dec. 16, roughly a week after the Fed’s gathering. The Bureau of Labor Statistics has not given any update on its Consumer Price Index reports, which provide policymakers with insights into how inflation is faring.
Policymakers have other data sources to look to, including regional surveys and other private-sector data. But the lapse in official government statistics risks making it much more difficult for the Fed to reach a consensus next month on whether to cut interest rates, which was seen as a done deal in the lead up to the latest meeting in October.
What has changed is that there has been a groundswell of opposition from many officials on the need to reduce borrowing costs further at this point. Those policymakers are chiefly worried about inflation and the fact that price pressures have picked up again because of President Trump’s tariffs. They appear less concerned about the labor market and more inclined to think that the overall slowdown in monthly jobs growth is a function of a reduced supply of workers, as opposed to flagging demand, as a result of Mr. Trump’s immigration restrictions.
On the other hand, there is a powerful set of backers for another interest rate cut, including several members of the Fed’s board of governors in Washington, who vote at every meeting.
Those divisions were on full display in minutes from October’s meeting, at which the Fed lowered interest rates by a quarter of a percentage point to a range to 3.75 percent to 4 percent.
Most policymakers thought the Fed should be lowering interest rates over time, but several of those officials suggested that a cut in December was not the right call. Overall, the minutes said that many participants at last month’s meeting wanted to keep interest rates unchanged for the remainder of the year. At the same time, several policymakers also thought a December cut “could well be appropriate.”
Andrew Hollenhorst, chief U.S. economist at Citigroup, said he expected September’s jobs report to help tip the balance in favor of a cut, although he conceded it was a close call.
“The unemployment rate is the more important thing to watch here,” he said, noting that it had ticked higher over the summer and in September’s report was close to rounding up to 4.5 percent.
“That’s the kind of trend that tells you that this is a labor market that is still loosening,” he said.
Mr. Seif acknowledged that September’s jobs report showed clear-cut signs that unemployment is rising, but ultimately he expects the Fed will stand pat. That reflects his view that there is a “clear hawkish element to the Fed right now.”
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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