Cooling US Job Market Gives Fed Room to Pause Rate Hikes for Now

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A cooling US job market gives the Federal Reserve room to pause interest-rate increases this month while keeping options open for another rate hike later in the year.

Nonfarm payrolls rose 187,000 after the prior two months were revised significantly lower, a Bureau of Labor Statistics report showed Friday. The unemployment rate rose to 3.8%, partly reflecting a pickup in labor-force participation, and average hourly earnings rose just 0.2%, marking the most tepid increase since February 2022.

Fed Chair Jerome Powell said last week at the Kansas City Fed’s conference in Jackson Hole, Wyoming, that inflation remained too high, and central bankers were prepared to tighten more if necessary. The Fed raised its benchmark rate in July to a range of 5.25% to 5.5%, a 22-year high, and their most recent projections had one more rate increase penciled in for 2023.

“The Fed is seeing a supply-side response, with a stronger labor market pulling people in,” said Brett Ryan, a senior US economist at Deutsche Bank AG. But “the Fed is still likely to kind of keep that threat of another hike out there,” he said.

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