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Fueled to accelerate rate hikes after Red Hot Jobs report

The Federal Reserve will likely launch another round of oversized rate hikes into the U.S. economy following searing jobs numbers the Labor Department released on Friday.

Until yesterday, the fed funds futures market implied a 66% chance that the Fed would raise the current target federal funds rate – now at 2.25-2.50% – by another 50 basis points to reach a range of 2.75 to 3.0%. Following news that the US economy added 528,000 jobs in July and the jobless rate fell to 3.5% – much higher than forecasts of 258,000 jobs and a steady unemployment rate of 3 .6% – the odds have changed violently.

On Friday, the market was implying a 69.5% chance that the Fed would raise rates by 75 basis points, giving a range of 3.0 to 3.25%.

If the Fed raises rates in September, it will be the fourth time it has done so in 2022. In the past two meetings, the Fed raised its interest rate target by 0.75 basis points, the biggest hikes since 1994. Fed officials say they hope to cool demand for labor working to bring down inflation. July’s employment figures indicate that these increases have not yet slowed job creation and that the labor market remains extremely tight.

Bank of America’s top U.S. economist, Michael Gapen, wrote to clients on Friday saying that current conditions show “little evidence of a slowdown in labor demand.”

​​“Following the July jobs report, which showed little evidence of a slowdown in labor demand, we now expect the Fed to raise the target range for the fed funds rate to 3, 50-3.75% by the end of the year, which is 25 basis points more than what we had. expected before,” Gapen wrote.

Randall Kroszner, former Fed governor and now a professor of economics at the University of Chicago Booth School of Business, Randall Kroszner told Bloomberg Television that the Fed is “on track” to keep raising rates , according to ZeroHedge.

“I think it’s really clear that they’re on track to keep raising those rates. Certainly 75 basis points will be on the table for the next meeting,” Kroszner said. It’s not just the strength of the labor market, but it’s also the significant increase in wages above the expected upward revisions.”

Marathon Asset Management Chairman and CEO Bruce Richards said he thinks the Fed “should be more aggressive,” ZeroHedge reported.

“Tough labor conditions persist, job growth is extremely impressive, which will no doubt force the Fed to tighten financial conditions more than markets have assumed,” Richards said.


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