Fed Rate Cut Pressure Mounts as Unemployment Soars

(MENAFN) US employment figures released for November exceeded forecasts with 64,000 nonfarm payroll additions, yet the unemployment rate climbed to 4.6%—the highest level recorded since September 2011—intensifying pressure on the Federal Reserve to implement rate reductions.

October's employment data revealed a contraction of 105,000 jobs, while August's nonfarm payroll decline underwent an upward adjustment from 4,000 to 26,000. September's employment growth was simultaneously revised downward from 119,000 to 108,000.

Wage data showed average hourly earnings advancing 0.1% on a monthly basis and 3.5% annually, reaching $36.86 during the reporting period.

The unemployment surge combined with downward revisions to August and September figures has created conflicting signals for Fed monetary policy direction, despite nonfarm payrolls surpassing expectations.

Rate Cuts to Come to Fore
Zafer Ergezen, a futures and commodity markets expert, told media that the Fed is on the lookout for subsequent data after employment figures.

Ergezen stated that the Fed may deem the rise in unemployment negatively, and be prompted to feel pressured into cutting rates, while added pressure may come from the US President Donald Trump's administration in particular.

"I expect a period of rate cuts to come to the fore, as the Fed chair is expected to be changed," he said.

Labor Market Slowdowns Pressure Fed to Cut Rates Further
James Knightley, chief international economist at the ING Group, told media that the slowdown in the labor market continues, putting more pressure on the Fed to cut rates.

"Given Fed Chair Jerome Powell's comments last week that they think payrolls are being overestimated by 60,000 per month, it indicates that the Fed has to acknowledge the economy is now losing jobs, which will push the doves to continue making the case for rate cuts," he said.

Knightley stated that the doves will continue to push for rate cuts due to these developments.

"The unemployment rate is now higher than they projected just last week, and with little sign of an imminent turnaround, we continue to favor a 25bp (basis points) cut in March and a further cut in June with the risks skewed towards more aggressive action," he added.

Rising Private Payrolls May Influence Fed Policy
Stephen Brown, deputy chief North America economist at Capital Economics, told media that the rise of 121,000 in private payrolls in October and November was over expectations.

"That positive momentum suggests that the Fed will not be overly concerned by the upside surprise in the unemployment rate to 4.6%, from 4.4% in September, providing we see unemployment stabilize in the coming months," he said.

Brown stated that the unemployment rate remained above the Fed's 4.5% projection for the fourth quarter.

"But, given that private payroll gains appear to have found a floor, we doubt that the modest upside surprise will be enough for the FOMC (Federal Open Market Committee) to consider resuming interest rate cuts at the next couple of meetings," he added.

Oliver Allen, senior US economist at Pantheon Macroeconomics, told media that the labor market remained weak, but not at a level to require the Fed to resume easing its policy in January.

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