The surge in US Jobs growth, with the unemployment rate falling to 4.1% as per new government data release, brings home the question regarding further reduction in interest rates. The resurgence in hiring led to an additional 254,000 jobs in September, which surpassed the average monthly gains of 203,000 over the last year. The US Bureau of Labour Statistics highlighted that the nonfarm payrolls have increased after rising by 159,000 in August.

The average hourly earnings increased by 0.4% after clocking 0.5% in August. On a year-on-year basis, the average hourly earnings were higher beating estimates of 3.8% and August’s 3.9%. Employers from various sectors added to the growing numbers, led by Hospitality, Healthcare, Professional and Government Services. Healthcare added close to 45,000 jobs and Government service close to 31,000. The unemployment rate spiked from 3.4% in April 2023, owing to factors like the annual automobile plant shutdowns in July which in turn led to some temporary lay-offs.

The wage data continued its strong trend and increased by 4% year-on-year as compared to 3.9% in August. The US unemployment rate dropped from 4.3% in August to 4.1%.

Amid economic concerns, a pick-up in wage gains and strong hiring data sends optimistic signals to the voters and reduces uncertainty, particularly before the US elections. With inflation falling sharply from 2022 levels, The US Fed last month cut interest rates to prevent the economy from sliding into a recessionary path. The current situation gives some leeway to the Fed before embarking upon any interest rate cuts.
The released data improves the probability of traders factoring in an interest rate cut of 25 basis points in the next Fed meeting. According to CME Fed Watch, the target rate for basis points as of 4th October is 450-475bps and has a probability of 97.1%. Meanwhile, the US 10-year yield shot up to 3.96%. The US Dollar index has shot up to 102 by 0.5%.