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Market Wire: Rate Expectations Fall After Payrolls Report Lands in Fed’s Sweet Spot

315,000 jobs were created in the United States last month, and the unemployment rate climbed as participation levels rose – indicating that the labour market remains strong enough to withstand a three-quarter-point rate increase at the next Federal Reserve meeting, but also suggesting rates won’t have to climb quite as high in the longer term.

According to data released by the Bureau of Labor Statistics this morning, the unemployment rate jumped to 3.7 percent in August, and the participation rate moved down to 62.4 percent from 62.1 in the prior month, indicating that workers are coming off the sidelines, attracted by higher wages and attractive job offers. Average hourly earnings rose 0.3 percent month-over-month, decelerating from July’s outsized 0.5-percent gain.

Ahead of the release, investors were positioned for a 290,000-job gain, with the unemployment rate seen holding at 3.5 percent.

The dollar ticked slightly lower on the print as traders lowered terminal rate expectations and modestly reduced bets on a 75 basis point move at the Fed’s September meeting. Stock futures are climbing as 2- and 10-year Treasury yields slide.

Karl Schamotta, Chief Market Strategist

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