What Fed Behaviour In Previous Hiking Cycles Says About A September Hike?
August NFP: Quick Take
The Fed needed a barnburner payrolls report to hike as early as September, and today's data didn't measure up to that task. As we expected, part of the divergence between soft growth and strong employment gains is being closed by an easing in the latter, at least for August, with payrolls up a more moderate 151K, just shy of our call but about 30K below consensus. Other details also were disappointments, with wages up only 0.1% in the month, the jobless rate remaining at 4.9% against expectations of an improvement, and average hours quite soft at 34.3, implying a weak month for total hours worked.
Bullish for Treasuries, bearish for the US$ today, although the latter cushioned a bit as the trade deficit came in a bit narrower than expected for July.
We'll stick with our call for a December hike, as even this rate of job gains would typically be enough to narrow slack over time.
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Although the Fed Chairman suggested that a rate hike in Sept remains an option market pricing discounts only a 40% probability. Just 15%of analysts forecast a rate hike at the next FOMC meeting in a few weeks.
We have checked expectations ahead of decisions in previous hiking cycles and found that decisions to raise the rate were both well anchored and widely expected.
While the outcome of the Sept meeting will likely depend on the next payroll report, a rate hike is unlikely unless further Fed guidance changes current expectations.
MORE GUIDANCE NEEDED FOR A SEPT. HIKE.
Based on the Fed's previous actions, we conclude that if it intends a rate hike at its upcoming meeting on Sept. 21 further guidance will be provided by the Fed Chairman and by other members of the FOMC in coming weeks, to change current expectations significantly.
Whether or not this occurs will depend on published data, particularly the August payroll report. However, if expectations remain divided with both the market discounting and analyst forecasts indicating below 50% probability of a rate rise going into the meeting,a rate increase in Sept seems unlikely