By Ann Saphir
Oct 2 (Reuters) – Federal Reserve policymakers on Friday got more reason to wait before raising interest rates again to fight inflation, after government data showed job gains are slowing and the unemployment rate ticked up.
It was the last broad read of the US labor market before November elections that will determine whether President Donald Trump’s Republican party keeps control of both houses of Congress.
A rising cost of living amid both elevated inflation and higher borrowing costs has put voters in a sour mood about the incumbents’ handling of the economy, though economic growth overall has been solid and the labor market has held pretty steady. The latest data shows that picture could be changing.
US employers added just 29,000 jobs last month, the Labor Department reported Friday, less than the 90,000 economists had expected. August payroll gains were revised downward. The September unemployment rate was 4.2%, up from 4.1%. Wage growth slowed.
The Fed raised short-term borrowing costs by a quarter of a percentage point last month to help get inflation back on track to 2%. Policymakers signaled they will likely deliver at least one more increase by year’s end if the Iran war and other shocks that have pushed up inflation persist, as long as the labor market remains stable.
Until early this week, with a peace deal elusive and trade tensions also on the front burner, expectations for a brisk series of rate hikes had been rising, along with longer-term bond yields, which hit a 24-year high on Thursday. Mortgage rates topped 7%.
But speaking this week, a couple of particularly influential Fed officials said they would rather see more data before considering further action, prompting traders to slash bets on a move at the Fed’s upcoming October 27-28 meeting, just days before the elections.
After Friday’s jobs data, interest rate futures prices showed traders see only about a one-in-six chance of a rate hike this month, down from more than one-in-four previously. Bets on a December rate hike also eased, but a Fed move by then is still seen as overwhelmingly likely.
Inflation by the Fed’s targeted measure was 3.4% in August, data showed this week – far above the 2% goal though not as bad as economists had projected. Economists said fresh reads on price pressures due shortly before Fed policymakers meet on rates in Washington could yet sway their thinking.
“The September CPI and PPI reports, prices at the pump, and geopolitical developments between now and when the Fed meets next in late October have more power to sway the next rate decision than this jobs report,” wrote Fifth Third economist Bill Adams.
(Reporting by Ann SaphirEditing by David Goodman and Chizu Nomiyama)
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