Fed Hiking Cycle Appears Done After Jobs Report Shows Cooling

(Bloomberg) — A cooling US job market gives the Federal Reserve room to keep interest rates on hold in December and reinforces market views that the central bank is done with the most aggressive hiking campaign in four decades.

Nonfarm payrolls increased 150,000 last month, less than expected, following a downwardly revised 297,000 advance in September, a Bureau of Labor Statistics report showed Friday. The unemployment rate climbed to 3.9%, and monthly wage growth slowed.

“Put a fork in it – they are done,” said Jay Bryson, Wells Fargo & Co. chief economist. “If you are an FOMC official, this is what you wanted to see. This is very good news for the Fed.”

The US central bank’s policy-setting Federal Open Market Committee voted on Wednesday to hold interest rates at a 22-year high for a second straight meeting. Fed Chair Jerome Powell told reporters in a press briefing that it’s an open question whether the central bank would need to hike again, and that it’s “proceeding carefully,” an assessment that’s often suggested a reluctance to raise rates in the near term.

Federal Reserve Bank of Richmond President Thomas Barkin said while the employment report was a welcome sign that the labor market was normalizing, his view on whether to raise rates again would depend more on the course of inflation. 

“I’m not going to prejudge that,” he said in a CNBC interview. “I value the optionality of seeing what we’re going to see in the data and in particular, we’re going to get two inflation reports between now and the next meeting, and I think that’s what’s going to matter to me.”

Powell said Wednesday that supply and demand conditions in the labor market were coming into better balance, citing a slowing in job gains, an increase in labor force participation and a rebound in immigration. The latest report confirms a slowing from the third quarter, when the economy grew at a 4.9% rate.

“The data shows the labor market is cooling,” said Yelena Shulyatyeva, senior US economist at BNP Paribas SA. “A sharp deceleration in hours going into the fourth quarter and further slowing in wage growth will keep the Fed patient at the December meeting and beyond.”

While policymakers in September penciled in one more rate hike for the year, Powell downplayed the significance of that projection on Wednesday. The Fed meets again Dec. 12-13.

Officials say no single report should be overemphasized, and Powell noted Wednesday there would be one additional jobs report and two key inflation datasets before the December FOMC meeting. Still, Fed watchers say it’s becoming obvious there will be no more hikes.

“This is a really good report for the Fed,” said Kathy Jones, Charles Schwab & Co.’s chief fixed-income strategist. “Softer job growth with slightly higher unemployment and slowing wage growth. No change in Fed policy in December is likely. The Fed’s rate hiking is probably done.”