August Jobs Data: Wolfe’s Chief Economist Says Hawkish Price Action May Be Taking The Print ‘A Little Too Far’

Stephanie Roth told Bloomberg TV the Federal Reserve’s decision on interest rates will ultimately hinge on inflation, which is due next week.

• Roth said August data reflects a rebound from seasonal weakness in leisure and hospitality employment during the previous two months.
• The U.S. economy added 162,000 jobs in August.
• Roth expects inflation to cool toward the “mid- to high twos” in coming months.

Wolfe Research Chief Economist Stephanie Roth reportedly said that while Friday’s surprisingly strong U.S. jobs report will have an impact, the Federal Reserve’s decision on interest rates will ultimately hinge on inflation.

The strong report pushed investors to increase bets on another rate hike. The CME FedWatch Tool showed the probability of a 25-basis-point hike at the Fed’s September 15-16 meeting rising to about 60.4%, from 49.4% a day earlier.

However, Roth said that it is unlikely that the Fed will hike rates based on the Jobs data. “I think the hawkish price action may be taking the print a little bit too far,” Roth told Bloomberg TV on Friday.

August Jobs Report A Rebound From Seasonal Weakness

The U.S. economy added 162,000 jobs in August, nearly triple the 56,000 increase economists polled by Reuters had expected. The unemployment rate remained at 4.1%, while July payrolls were revised to a gain of 21,000 from a previously reported decline of 23,000.

Roth, however, said part of August’s strength reflected a rebound from seasonal weakness in leisure and hospitality employment during the previous two months.

“The fact that it bounced back doesn’t really imply that much happening under the surface,” she said.

Inflation Data Will Be Deciding Factor

Roth said the report confirms that the labor market is “not something to worry about,” but argued that inflation will be more important for the Fed.

“Realistically, it’s going to be the inflation data that’s going to dictate what the Fed does,” she said. The Bureau of Labor Statistics is scheduled to release August Consumer Price Index data on September 11, just days before the Fed meeting.

Roth expects inflation to cool toward the “mid- to high twos” in coming months as some earlier pressures from seasonal factors, tariffs, the Iran war and chip shortages fade.

“So, long story short, we’re probably gonna see an environment where inflation is running in the sort of mid to high twos, which is obviously not where they want to be, but not quite at the 3-plus percent range as core PCE is currently printed,” she said.

U.S. equities fell following the jobs report. The SPDR S&P 500 ETF (SPY) dipped 0.45%, the SPDR Dow Jones Industrial Average ETF (DIA) fell 0.50%, while the  Invesco QQQ Trust (QQQ) moved marginally lower. 

Retail sentiment around SPY trended in ‘bearish’ territory over the past 24 hours, while sentiment around QQQ changed to ‘bullish’ from ‘neutral’ territory.

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