Economists believe this cooling labor market, combined with steady wage growth, could give the Fed more flexibility to gradually cut rates. “The balance of power has shifted back to employers, which will ease wage pressures,” said Katie Nixon, CIO at Northern Trust Wealth Management.
Potential surprises and the Fed’s response
While consensus forecasts point to moderate job growth, a stronger-than-expected report could complicate the Fed’s efforts. Some analysts, such as JPMorgan’s David Kelly, caution against reading too much into one-month numbers, as NFP data can often fluctuate unexpectedly due to revisions. If job growth turns out significantly higher than expected, the Fed could be forced to reconsider the pace of rate cuts.
There is also the possibility of downside risks. The impact of strikes and natural disasters, such as Hurricane Helene and the Boeing machinists’ strike, could weigh on employment figures, especially as these disruptions could lead to further volatility in the coming months. Economists view the September report as the last “clean” data point before the distortions expected in the October NFP report.
Wage growth remains central
Another concern for inflation hawks is wages, and the September report is likely to reinforce expectations that wage increases will moderate. If wages continue to grow at a slower pace, this could support the view that inflationary pressures are easing. However, wage inflation remains a critical issue as any unexpected acceleration could force the Fed to take a more aggressive stance on monetary policy.
Market Forecast: Neutral to Bearish Outlook
Traders will probably have a neutral to bearish outlook in response to the jobs report, given the expected cooling of the labor market. If job growth is in line with forecasts and wage growth remains stable, this could provide reassurance that the economy is cooling at a controlled pace. However, any significant deviations – especially stronger job numbers or wages – could lead to more bearish market reaction as traders anticipate an extended period of Fed tightening.
As the market awaits the Fed’s next move, the September report is likely to reinforce the view that a soft landing remains feasible, although the path ahead remains uncertain.