Federal Reserve Decision Gives Extra Importance for August Jobs Numbers

Markets are anticipating the release of August’s employment data in the United States on Friday, with expectations that it will show yet another improvement in the jobs market.

A recent survey by WSJ shows that nonfarm payrolls (NFP) increased by 720,000, after a rise of 943,000 in July, with the average hourly wage increasing on a monthly and annual basis by 0.3% and 4%, respectively.

Meanwhile, the unemployment rate is seen further declining to 5.2% from 5.4%.

The importance of last month’s jobs data lies in the fact that it will be closely monitored by the Federal Reserve, which will more than likely decide later this month in its policy meeting to cut the asset purchases from their current $120 billion monthly level.

Many fed officials recently pointed to the importance of the August jobs numbers, such as Atlanta Fed President Raphael Bostic, who said the tapering should begin if the August jobs numbers were as strong as the previous two months.

In addition, Philadelphia Fed President Patrick Harker told Yahoo Finance that he sees further improvements in the jobs market in the coming months, with further progress on the road to recovery, especially as more people are vaccinated. However, he did point to market expectations that supply chain bottlenecks might last longer than previously expected.

The Federal Open Market Committee (FOMC) July meeting minutes showed that most members think limiting asset purchase could begin this year, while a majority see the beginning of tapering early next year.

This comes in line with the recent remarks by Fed officials that showed a growing expectation of tapering a soon as possible, while other FOMC members think that tapering would be more appropriate with better conditions in the labor market, or more signs of the anticipated substantial further progress.

It is worth noting that reducing asset purchases would come before any interest rate hike, as repeatedly explained by Fed Chair Jerome Powell, who also indicated that the Fed would not surprise markets with cutting asset purchases, giving proper signals before such a decision.