Fed To Take On Another Massive Rate Hike As Job Market Fails To Cool

The Federal Reserve seems almost certain to implement a fourth consecutive 75-basis point interest rate hike in November after a closely watched report Friday showed its hawkish rate rises so far this year have done little to cool the U.S. labor market.

Pricing of futures connected to the Fed’s policy rate indicated a 92% probability that the Fed will lift its policy rate, currently at 3%-3.25%, to a 3.75%-4% range when it meets Nov. 1-2.

That was up from about an 85% probability seen before the Labor Department report, which showed that employers added a larger-than-anticipated 263,000 jobs in September and that the jobless rate dropped to 3.5% from 3.7%.

It was the unfitting direction for a U.S. central bank keen on slowing demand for labor as a centerpiece of its fight against inflation that is surging more than triple its 2% goal.

The Fed has lifted short-term borrowing costs quicker this year than any time since the 1980s to remove the heat from the economy and reduce price pressures.

The higher rates have greatly cooled the scorching housing market, where a scarcity of supply had helped drive prices up more than 40% in the first two years of the pandemic. There, with mortgage rates growing to nearly 7%, home sales have dropped and price gains have slowed greatly.

A report earlier this week showed job openings dropped sharply in August, and volatility in global equity prices as the Fed and other central banks have hiked rates, had aroused hopes in some quarters that the Fed would soon reduce or even end its rate hikes.

Fed policymakers have repeatedly disapproved of such a narrative, saying their work to curb inflation will entail pain and is nowhere close to being over. Friday’s job report highlighted that view. Shawn Cruz, head trading strategist at TD Ameritrade in Chicago, said:

“If you are someone who is looking for a pause or pivot or whatever it is, they are pretty much flat-out telling you we are not doing that. People keep trying to convince themselves. It’s like are you lying to me or lying to yourself, it seems like a lot of people are lying to themselves that the Fed will stop.”