A jobs pop is great, but it also raises the stakes for inflation. On Friday, in an appearance on Bloomberg Television, Jeff Rosenberg, a portfolio manager at BlackRock, said, "This kind of confirms what we've known about the labor market and puts the focus and the onus back on the inflation." "It's really about inflation going up or not going down fast enough as to whether or not the Fed hikes in the September meeting."
He added that if the Sept. 11 consumer price index shows continuing improvement, "I think they hold." Put differently, a hike hinges less on hiring and more on whether price pressures stop easing.
August payrolls rose by 162,000, surpassing all economist forecasts collected by Bloomberg, and the previously reported job losses for July were revised away. That reinforced Wall Street's view that the Federal Open Market Committee could still lift rates this month. Yields on rate sensitive two-year Treasuries jumped, and traders boosted odds of action at the Sept. 15-16 meeting. As Rosenberg put it, "The jobs report really only had the chance to sort of decrease the likelihood if it was exceptionally weak." Friday's release was "much more about next week and much more about inflation."
Rosenberg flagged energy as the bigger inflation swing factor now, warning that higher fuel costs can feed from headline inflation into the core measures the Fed watches. The labor update landed just hours after AAA said the average price of diesel at US stations reached an all-time high of $5.85 per gallon.
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Rosenberg described today's backdrop as a "low-hire, low-fire" job market and said wage pressures are no longer the standout threat they seemed coming out of Covid era disruptions. He also argued that even if the Fed goes with a 25 basis point increase, investor appetite for stocks and corporate debt probably would not shift much. In his view, equity performance is driven more by earnings and earnings growth, including the powerful run in technology tied to AI. With credit quality still solid and spreads tight, he said bond markets look able to absorb a single quarter point move.
