Fed seen leaning toward another rate hike after big jobs gain

investmentnews.com:

A hotter-than-expected jobs report will likely nudge the Federal Reserve toward raising interest rates again by the end of the year.

Nonfarm payrolls increased 336,000 last month after sizable upward revisions to the prior two months, a Bureau of Labor Statistics report showed Friday. The unemployment rate held at 3.8%, and wages rose at a modest pace.

“This will keep the Fed very guarded and very much concerned about upside risk,” said Luke Tilley, chief economist at Wilmington Trust Corp, “because this plays into their concerns about a reacceleration in the economy.”

Fed officials led by Chair Jerome Powell are trying to decide whether they need to hike their benchmark lending rate again after raising it by more than five percentage points over the last 19 months. They left the rate unchanged at their last policy meeting in September, though 12 out of 19 officials signaled they would support another rate increase this year, according to projections released at the meeting.

Odds of an interest-rate hike by year’s end rose to 56% following the jobs report, from 48%, according to initial market pricing.

Fed officials believe the labor market remains overheated, contributing to price pressures that have pushed inflation well above the central bank’s 2% goal.

“Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions,” Powell said on Sept. 20.

At the same time, Powell and his colleagues on the Federal Open Market Committee have repeatedly said they will be cautious with additional moves as they near the end of their hiking cycle, suggesting some wariness about moving at the upcoming meeting that concludes Nov. 1.

In addition, a recent surge in longer-term yields may