Fed still on track for a September hike after non-farm payrolls – CIBC

CIBC continues to believe the Federal Reserve will raise rates by 25 basis points once again in September.

The below consensus hiring and past downward revisions suggests that the labor market is
coming into better balance. Still, the drop in the unemployment rate and solid wage growth will keep the Fed on track for a
25bp hike in September.

The rates market is pricing in just a 13.5% chance of a Sept hike now and around 35% for November. The decision isn’t until September 20 so we will get another non-farm payrolls report and two CPI reports; leaving plenty of time for markets and economists to shift positions.

CIBC notes that the composition of hiring may be showing weakness:

More than half of the job growth in the month came from the Education and Health Care sector (+100K). Hiring in this
sector has likely been aided by investment from state and local governments that are flush with cash. But there was a
generally weaker trend across most other sectors across. In particular, employment in transportation/warehousing
dropped for the second consecutive month, information saw its third straight decline and temporary help payrolls fell
for the fifth consecutive month.

Overall, they say that Powell should be smiling about this report because it’s the kind of labour market softening that the Fed is looking for. The US dollar remains soft on the day.