Fed certain to slash rates next month after tepid jobs report — asset managers

Another weak jobs data report for August — in tandem with significant downward revisions to the prior two months’ payroll figures — virtually guarantees that the Federal Reserve will cut interest rates, probably by 25 or 50 basis points, at its next meeting Sept. 17-18.

The labor market continues to show signs of deceleration, said Lindsay Rosner, head of multisector investing at Goldman Sachs Asset Management.

“What is clear is the Fed is cutting (rates) and upcoming Fed-speak will help shed some light on the internal debate around the September meeting,” she said.

GSAM has $2.6 trillion in assets under supervision.

Josh Jamner, investment strategy analyst at ClearBridge Investments, characterized the labor market as “cooling but still healthy.” He noted that there are details in the August jobs report that can support "both sides of the 25 vs. 50 bps (cut) debate for the September meeting.”

ClearBridge has $184.9 billion in assets under management.

Carol Schleif, chief investment officer at BMO Family Office, also agreed that the August jobs data will allow the Fed to cut rates by either 25 or 50 basis points, but added that the magnitude of the rate reduction will depend on the August consumer inflation report, which is due Sept. 11.

BMO Family Office has $22 billion in AUM and consultation.

The U.S. economy created 142,000 jobs in August, well above the downwardly revised figure of 89,000 from July, but below economists’ expectations, the U.S. Bureau of Labor Statistics reported on Sept. 6.

The unemployment rate clocked in at 4.2%, virtually unchanged from the prior month. Economists had expected an increase of 160,000 jobs in July and a jobless rate of 4.2%, according to a survey by FactSet Research Systems, a financial data firm.

The August payroll figure also fell below the average monthly gain of 202,000 jobs over the prior 12 months, the bureau said.

The bureau also noted some rather significant downward revisions to payroll figures from the past two months: The June payroll figure was revised down by 61,000 to 118,000, while the July number was revised down by 25,000 to 89,000. With these revisions, employment in June and July combined was 86,000 lower than previously reported.

In August, job gains were especially pronounced in the healthcare and construction sectors, the bureau added in the release.

The Fed will clearly consider the health of the labor market when it releases its next policy decision on Sept. 18.

As of the morning of Sept. 6, according to CME Group's FedWatch tool, market participants' pricing of fed fund futures indicated there is a 61% probability that the central bank will cut rates by 25 basis points at the next meeting, and a 39% probability it will cut rates by 50 basis points.

The Fed’s key short-term interest rate is currently in a range of 5.25% to 5.5%, after the central bank again elected to hold rates steady for the eighth straight time at its last meeting on July 31.

In a speech delivered at Jackson Hole, Wyo., on Aug. 23, Fed Chair Jerome Powell clearly stated that rate cuts were imminent.

“The time has come for (monetary) policy to adjust,” he said. “The timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”

Schleif of BMO also said she expects stock market volatility to “remain elevated” and exceedingly dependent on incoming economic data through the presidential election.

“We remind investors that in a mere two months, much of that uncertainty will be settled and markets will be focusing on 2025 earnings, which we expect to be solid,” she said.

Adam Hetts, global head of multiasset at Janus Henderson Investors, took a more measured view, saying that, overall, the jobs report “stays within the range of a slowing, but not slow, economy, and doesn't outright threaten the soft-landing narrative nor scream (for) 50 bps in September cuts.”

Janus Henderson has $361.4 billion in AUM.