Jobs or Inflation: Which Will Cool Quicker?

livemint.com:

unemployment rate, which is based on a separate survey, rose to 3.8% from July’s 3.5%. This wasn’t a reflection of job losses, though; rather, it came about because the share of the working-age population that is employed or seeking employment rose. Because this increase in labor-force participation should help ease hiring strains, it points the way to further cooling in wages.

Coming on the heels of a Commerce Department report Thursday that showed the Fed’s favored measure of inflation continued to moderate in July, Friday’s report cheered investors. Interest-rate futures now imply there is little chance of the Fed raising interest rates later this month, and that there is only about a one-in-three chance of the central bank raising rates at all through the remainder of the year. A week ago, futures put the chances of another rate increase by the end of this year at better than even.

It is important to recognize that Fed policy makers don’t yet believe their job is finished. If they opt to leave rates on hold, it will be because they believe that rates are already restricting the economy by quite a bit, and that further hikes won’t be necessary. Cutting rates is another matter, though: While it wouldn’t be necessary for inflation to go all the way down to the central bank’s 2% target, Fed Chairman Jay Powellemphasized last week that policy makers will need to be confident that inflation “is moving down sustainably" toward that goal.

As of July, the Commerce Department’s measure of consumer prices excluding food and energy items was up 4.2% versus a year earlier. But the annual pace over the three months ended July was a cooler 2.9%. One risk is that the job market will go from cooling to deteriorating before inflation