The US labor market just made the Federal Reserve’s job considerably harder. August nonfarm payrolls came in at 162,000, blowing past consensus estimates that had clustered between 56,000 and 65,000 jobs.
BlackRock portfolio manager Jeffrey Rosenberg, speaking on Bloomberg Television, was direct about what comes next: the September 11 consumer price index print is now the most consequential data release between now and the Fed’s meeting on September 15 and 16.
What the jobs report actually says
The headline payrolls figure was striking enough, but the details reinforced the picture. The unemployment rate held at 4.1%, a level consistent with a labor market that has not cracked under the weight of elevated interest rates. Average hourly earnings climbed 0.3% month-over-month and 3.1% year-over-year, a pace that keeps wage-driven inflation concerns alive.
The revisions to July’s data added another layer. An initial reported decline of 23,000 jobs was revised to a net gain of 21,000, a swing of 44,000 that reframes the prior month’s narrative entirely.
The market’s immediate reaction tracked exactly what you would expect. Treasury yields moved higher, and implied probabilities of a September rate hike climbed to roughly 59%.
Why the CPI on September 11 is everything
Rosenberg framed the decision tree cleanly. A cooling CPI gives the Fed cover to hold rates where they are. A hotter-than-expected print tips the balance toward a hike.
BlackRock highlighted energy prices as a persistent driver within core inflation calculations.
For market participants, the asymmetry is worth understanding. If CPI surprises to the upside, the Fed’s hand is effectively forced, and markets are likely to price in the hike quickly. If CPI comes in soft, the jobs data alone probably does not carry enough inflationary weight to compel action, and rates stay put for now.
What a potential hike would actually mean
BlackRock’s assessment on a possible 25 basis point increase is notably measured. The firm indicated that a hike of that magnitude would likely have limited ramifications for stock and credit markets in isolation.
Rosenberg’s broader point is that sustained hiring levels keep the Fed’s options open rather than closing them off, including the possibility of a September rate hike contingent upon the CPI results.