Cooling US job market boosts case for end of Fed rate hikes

investing.com:

By Ann Saphir and Howard Schneider

-Slowing U.S. job growth and cooling wage pressures may give Federal Reserve policymakers renewed confidence that the U.S. economy is adjusting from the shock of the coronavirus pandemic, allowing inflation to continue to ease without the need for further interest rate increases.

That was certainly the bet in financial markets after the Labor Department reported that nonfarm payrolls increased by 150,000 last month, below the pre-pandemic trend for only the third time since December 2020, and hourly earnings rose 4.1% from a year earlier, the smallest increase since June 2021.

Bond yields fell, and traders of contracts tied to the Fed's policy rate now see only a 15% chance of a rate hike by January, down from 30% before the release of the employment report. Rate futures pricing now reflects a better-than-even chance of a Fed rate cut by May of 2024, with several more cuts expected later next year.

U.S. central bankers themselves are not even thinking about rate cuts, Fed Chair Jerome Powell said this week after the Fed kept its benchmark overnight interest rate steady in the 5.25%-5.50% range. Policymakers are waiting for more confirmation the economy is coming into better balance after pandemic disruptions to the supply of goods and labor helped push inflation to 40-year highs last year.

But Powell also signaled that a further rate hike could yet be in the offing as he and his central bank colleagues were not yet confident that monetary policy is restrictive enough to bring inflation down to the Fed's 2% target. He cited the rise in longer-term borrowing costs, including the rise in 30-year fixed-rate mortgages to nearly 8%, as potentially doing some of the work that otherwise might