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Investing.com -- Wall Street analysts are divided over whether the Federal Reserve will deliver a December rate cut after the September jobs report released on Thursday showed stronger-than-expected payroll gains but a rise in unemployment.
The data was delayed by six weeks due to the U.S. Government shutdown.
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Nonfarm payrolls increased by 119,000 in September, well above the consensus forecast of 50,000.
Analysts at Vital Knowledge noted that downward revisions of 33,000 to July and August “were negative,” leaving August in outright decline.
The firm argued that “the most significant number” may be the surge in the labor force, which helped push the unemployment rate up to 4.4%, and that muted wage growth at 0.2% gives doves an argument that “the Fed [can] continue cutting.”
Still, the headline gain “is far above the present break-even level,” bolstering hawks who want “an extended pause.”
CIBC Economics said the report “should be enough for the Fed to pause in December,” citing the rebound in the three-month average job gain to 62,000 and the rise in participation to 62.4%.
The firm expects policymakers to “kick the can down the road to the new year” amid a “data fog” and uncertainty around tariffs.
Wells Fargo’s Sarah House stated that the report “did not provide clarity” ahead of the December meeting.
“We remain of the view that what the Fed should do is cut the federal funds rate by 25 bps amid an unemployment rate that is consistent with small but building labor market slack and an inflation backdrop that looks increasingly benign outside tariff-induced price increases,” stated House.
However, she believes the Fed will do “a separate debate,” with hawks likely pointing to “still above-target inflation” and firm job growth.
Meanwhile, Wolfe Research’s Stephanie Roth believes the negative revisions and soft wages keep “a December cut in play,” consistent with her firm’s call for one more 25 bp cut this year.
But Morgan Stanley’s Michael Gapen took the opposite stance, saying the “sharp and broad rebound” in hiring means the summertime slowdown “might have been exaggerated.”
“The broad rebound in payrolls suggests diminished risks of a higher unemployment rate. We no longer expect a Fed cut in December,” wrote the analyst.
“We now expect cuts in January, April, and June, for the same 3-3.25% terminal rate as we had forecast.”