September job gains reinforce that the Fed has a long way to go in the inflation fight.

The latest job report from September has assured that the jobs market remains strong, and Fed will have to do more to slow the jobs market.

The 263,000 increases in nonfarm payrolls were just below expectations and the slowest monthly gain in nearly a year and a half.

But a surprising plunge in the unemployment rate and another boost in worker wages sent a clear message to markets that more massive interest rate hikes are on the way.

The number of job openings in the U.S. slumped by more than a million in August, signaling that the massive U.S. labor lacuna is beginning to close.

Available positions totaled 10.06 million for the month, a 10% drop from the 11.16 million reported in July, according to the latest release by the Bureau of Labor Statistics on Tuesday. That was also well below the 11 million estimates by FactSet and was the biggest one-month plunge since March 2020 in the early days of the Covid-19 pandemic.

The Job Openings and Labor Turnover (JOLT) numbers are watched closely by the Fed, which is trying to reverse sky-high inflation through a series of five policy rate hikes this year that thus far have three percentage points in total.

One major area of interest for the Federal Reserve has been the ultra-tight labor market, showing close to two job openings for every available worker. That ratio contracted to 1.65 to 1 in August.

The labor market has been a significant driver of runaway inflation, as the excess demand for the labor pool has helped drive up wages quickly. Average hourly earnings increased by 5.2% through August since the last year. But adjusted for inflation, real earnings slumped by 2.7%.

Job openings took a major dip in August, declining by more than about 1.1 million, but they still total more than 10 million. The data points to a jobs market that’s still challenging for employers. But considering the plunge in openings and the large number of Americans who entered the labor force in August, close to 900,000, the worst of the tight labor market seems to be over.

Fed officials have indicated historically tight labor market as a byproduct of economic conditions that have pushed inflation rates to near the highest point since the early 1980s.

A series of central bank rate increases have been aimed at reducing demand and thus loosening the labor market where there are still 1.7 open jobs for every available worker.

Aligning demand with labor supply has been a primary goal for the Central Bank, which utilizes interest rate hikes to slow the money flow through the economy.

The labor market has remained resistant to these moves, with weekly jobless claims hitting a five-month low and the unemployment rate at 3.8%.

The nonfarm payrolls report released on Friday only reinforced that the conditions behind inflation are intact. Markets still expect the Federal reserve to push forward with a fourth consecutive interest rate hike of 0.75 percent at the next FOMC meeting.

To financial markets, this would imply that the Fed will approve a fourth successive three-quarters of percentage points hike in interest rate. This will be the last job report policymakers will check before the November 1–2 Federal Open Market Committee (FOMC) meeting.

The Central Bank keeps a tight watch on JOLT numbers to cool the embers of sky-high inflation through a series of five policy rate hikes this year that thus far have three percentage points in total.

Written by Parul Bhatia for ToroAlerts, LLC

ToroAlerts is implementing artificial intelligence in investing and trading, using machine learning algorithms with predictive technical analytics to optimize portfolio returns.

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