A ‘grand slam’ jobs report could shift the Fed’s rate cut plans

Non-farm payrolls rose by 254,000 last month, the Bureau of Labor Statistics reported Friday, well above the 150,000 expected by forecasters. The unemployment rate also fell to 4.1% from 4.2% in August; and after several months of negative revisions to previous jobs data, July and August’s job growth figures were revised up by 72,000.

“Today’s data hit a grand slam with payrolls coming in strong, positive revisions, and unemployment falling,” Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management, told Fortune via email. “The economy is heading into the postseason solidly.”

Job gains were widespread in September, with only three out of 12 sectors of the economy showing job losses during the month. Average hourly earnings remained strong as well, rising 0.4% month over month and 4% from a year ago. And aggregate weekly hours worked jumped 0.2% last month and 1.2% from a year ago.

At a National Association for Business Economics annual meeting in Nashville, Tenn., earlier this week, Fed Chair Jerome Powell described the labor market as “solid,” but noted that it has “clearly cooled” over the past year with workers stating that jobs are less available. But now concerns about the labor market and a recession may be fading.

“This month’s report was a large upside surprise and encouragingly signals that the economy is still moving along at a solid pace,” William Blair’s macro analyst Richard de Chazal wrote of the data in a Friday note to clients.

After the Fed instituted an outsized 50-basis-point rate cut last month in hopes of preventing a further weakening in the labor market, most experts now believe this new data will change officials’ tune moving forward. 

Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, sees 25-basis-point cuts in November and December with that gradual pace continuing into 2025, arguing that strong job and wage gains signal a “soft landing is in sight.”

“The Fed can continue recalibrating its policy stance to one that’s less restrictive, and this shows that they don’t really need to be in a rush right now,” she told Fortune via email. 

The calls for a more moderate pace of rate cuts were widespread on Friday. 

Aditya Bhave, Bank of America’s U.S. economist, predicted earlier that the Fed may opt for another 50-basis-point rate cut in November to prevent a further rise in the unemployment rate. But after this jobs report, he now believes a 25-basis-point rate cut is on the menu.

LPL Financial chief economist Jeffrey Roach said he, too, expects the Fed to cut rates by 25 basis points at the next few meetings. He argued a 50-basis-point rate cut would be “completely unwarranted” given the strength of the economy.

The bond market is also now pricing in a more than 99% chance of a quarter-point rate cut next month, according to the CME Group’s FedWatch Tool.

However, Roach noted that there was one “caution flag” in Friday’s solid jobs report: some 5.3% of Americans now hold multiple jobs.

“The previous time this ratio was higher was early 2009 when the economy was in the midst of the Great Financial Crisis,” he told Fortune via email.