Federal Reserve officials are likely to cast a wary eye on September jobs data, which showed that employers both hired at a rapid clip last month and had added more workers in the previous two months than had been reported earlier.
Employers added 336,000 jobs last month, sharply more than the 170,000 economists had predicted. Fed officials have been keeping a careful watch on the labor market as they try to assess how much more they need to raise interest rates to bring inflation under control, and how long borrowing costs should stay high.
That pace of hiring is likely fast enough to keep Fed officials thinking about making one more rate increase. Central bankers have already lifted rates to a range of 5.25 to 5.5 percent, and have suggested that they could make one more rate move in 2023 before holding borrowing costs at a high level throughout 2024.
Fed policymakers had been encouraged that hiring had slowed recently — and that trend now seems far less certain. Although officials usually embrace signs that the labor market is strong, they worry that inflation could prove difficult to stamp out completely if the economy retains too much momentum.
The Fed’s next meeting is Oct. 31 to Nov. 1, so policymakers will not receive another employment report before they need to make their next rate decision.
But the report did contain some evidence that the economy is simmering down under the surface. Fed policymakers have been closely watching for signs that wage growth is slowing, and the data showed that pay grew at only a modest pace in September. Beyond that, some economists said a number of key developments could slow growth this autumn.
Among them, longer term interest rates in financial markets have climbed sharply in recent weeks, which will make it more expensive for consumers to finance a car or house purchase and for businesses to expand. That could prevent the Fed from rushing to react to the strong labor market.
“In isolation, economic data would probably justify the Fed hiking at the November meeting — what gives me pause for thought is the fact that long-term yields have increased significantly,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “They will have to weigh how much the recent rise in yields and tightening in financial conditions has done the job for them.”
The jobs report initially made Wall Street investors wary that the Fed might raise interest rates further, something that would weigh on corporate profits and stock valuations. The S&P 500 stock index slipped just after the report, and the yield on the 10-year Treasury bond, which is a benchmark interest rate around the world, initially rose.
But stocks rebounded and yields eased throughout the day — suggesting that Wall Street became less worried as they digested the totality of the data.
Some of that comfort could have come from the news on wages, which suggest that the economy is neither overheating nor cracking. Average hourly earnings were up 4.2 percent from a year earlier, the mildest increase since June 2021.
Unemployment is also in line with what the Fed has been expecting. Officials have continued to predict that unemployment will probably rise slightly as the economy slows, to about 4.1 percent, which would still be low by historical standards. The rate stood at 3.8 percent as of September, up slightly from 3.4 percent earlier this year.
Although September hiring was strong, speed bumps lay ahead for the economy. The recent increase in mortgage rates and other borrowing costs is likely to squeeze growth just as the economy faces other challenges — including the resumption of student loan payments, strikes at car manufacturers and in other industries and dwindling consumer savings piles.
“The auto union workers strike will weigh on job growth in October while easing consumer spending and more cautious business activity will lead to slower labor demand,” Gregory Daco, the chief economist at EY-Parthenon, wrote in a note following the report.
Central bankers will receive a fresh Consumer Price Index inflation reading on Oct. 12, ahead of their next gathering. If they decide to leave interest rates unchanged at the upcoming meeting, they will have one final opportunity to adjust them this year when they meet on Dec. 12-13.
Joe Rennison contributed reporting.