The September jobs report came in hotter than predicted, with U.S. payrolls increasing by 254,000 and the unemployment rate surprisingly slipping to 4.1%. Wage growth exceeded expectations, rising 0.4% month-over-month and 4% year-over-year.

These robust numbers have sparked a fresh debate among economists about the Federal Reserve’s next move. The general consensus now seems to lean toward a more gradual approach to rate cuts, as the labor market’s resilience weakens the case for aggressive monetary easing.

Here’s how five experts are interpreting the latest jobs data.

“Blowout” Report Suggests Fed Should Stay Cautious

Economist Mohamed El-Erian describes the September jobs report as a “blowout,” highlighting the stronger-than-expected job creation and wage growth. He says that this data reinforces the strength of the labor market and “U.S. economic exceptionalism.”

El-Erian suggests the report offers a reason for the Fed to resist market pressure for significant rate cuts in 2024-25, favoring a more cautious approach to monetary easing.

According to Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, the September report suggests a turnaround following signs of labor market weakening earlier in the year.

He warns against overreacting to either overly optimistic or pessimistic reports, and sees this as further evidence of a growing economy with a solid labor market.

“This should put to rest – at least for the next month – the idea that the economy is about to fall off a cliff or that imminent doom is on the horizon,” he said.

He maintains a balanced outlook, suggesting that while one strong report doesn’t warrant excessive optimism, the data strengthens the case for investors to remain fully invested in equities as the economy continues to grow.

Joseph Brusuelas, principal and chief economist at RSM US LLP, highlights the strong wage growth in September, with a 0.4% monthly increase and 4% annualized growth, providing momentum as the U.S. heads into the crucial holiday season.

The economist underlines that “hiring remains rock solid,” even though some seasonal and technical factors may inflate the topline numbers. He sees the economy on track to grow at or above a 3% pace.

Brusuelas dismisses concerns of an imminent recession, instead signaling a “mid-cycle economic expansion” as hiring moderates from post-pandemic highs.

Looking ahead, he interprets the strong jobs data as support for the Federal Reserve to adopt a more gradual approach to rate cuts.

Broad Job Gains Point To Smaller Rate Cuts

The recent data flow raises questions about whether the Fed’s “super-sized cut was warranted,” says Aditya Bhave, U.S. economist at BofA Securities.

Bhave highlights the September jobs report, calling it “gangbusters,” as it reinforces his perspective with robust job growth, upward revisions to previous months, and a drop in the unemployment rate. Moreover, last week’s gross domestic product revisions also pointed to a healthier economy than previously thought.

Given the strength of recent economic reports, Bhave has revised his November forecast from a 50bp cut to 25bp, while maintaining the same path of rate cuts into 2025. He now projects a terminal rate between 3.0% and 3.25%, noting that the risks to this figure are skewed to the upside due to stronger-than-expected productivity growth.

Jeffrey Roach chief economist for LPL Financial emphasizes the broad-based payroll increase. He suggests that “this solid report increases the odds that the economy will continue to grow above trend in the next quarter” and that the Fed is likely to opt for a “quarter point” rate cut rather than a larger one.

However, he also highlights a slight drop in hours worked and a rise in the percentage of workers holding multiple jobs, suggesting some caution is warranted.

According to Nathaniel Casey, investment strategist at wealth management firm Evelyn Partners, the robust payroll data reassures markets of the U.S. economy’s strength.

He highlights that “the headline non-farm payroll figure saw its largest beat over consensus estimates since December 2023.”

While the unemployment rate’s drop to 4.1% is encouraging, he cautions that rising hourly earnings could trigger inflationary concerns.

The expert warns that with such strong labor market data, the likelihood of a 50-basis point rate cut has diminished, with markets now favoring a smaller 25-basis point cut in November.

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Image created using artificial intelligence via Midjourney.