The Federal Reserve is likely to make a call it will come to regret, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations, as fresh employment data lands less than two weeks before policymakers meet to decide on interest rates.
The comments from Nigel Green come as the Bureau of Labor Statistics reported that US employers added 162,000 jobs in August, comfortably beating forecasts of roughly 53,000 and pushing unemployment to hold at 4.1%.
June and July payrolls were also revised up by a combined 55,000, turning what had briefly looked like a two-month stall into a rebound. Wage growth, however, cooled to 3.1% on the year, its slowest pace in five years and still running below the latest annual inflation reading of 3.4%.
He says: “Look past the top-line number and this isn’t the picture of a labour market firing on all cylinders.
“It’s a labour market being carried by a handful of sectors while wage growth quietly loses ground to inflation. This is, surely, imbalance dressed up as strength.”
The gains were heavily concentrated. Leisure and hospitality added 62,000 positions after two straight months of losses, local government education reversed a sharp July decline, and healthcare and social assistance kept adding jobs as it has for months.
Meanwhile, the information sector shed workers, average hours ticked only marginally higher, and the share of people stuck in part-time work for economic reasons, while lower than earlier in the year, remains elevated by historical standards.
The deVere comments: “A rebound built on a leisure and hospitality bounce and a swing in local government hiring isn’t the same as broad-based momentum.
“Investors and policymakers who treat this print as an all-clear are reading the top line and skipping the fine print.”
Markets widely expect the Federal Reserve to leave its benchmark rate unchanged at 3.50% to 3.75% when the committee meets on September 16, the fourth straight hold since December.
Nigel Green believes that caution, while explainable given still-elevated inflation, is now the wrong call.
He says: “I expect the Fed to sit on its hands again this month, and I think that will prove to be a mistake.
“Wage growth below inflation for workers already stretched thin isn’t a sign of an economy that needs more patience from its central bank. It’s a sign of one that needs support before the soft patches spread.”
Nigel Green argues that policymakers are at risk of anchoring too heavily on a single stronger-than-expected month rather than the trend beneath it.
He says: “One good month after two weak ones doesn’t erase the pattern. Revisions, concentration in a few sectors and wage growth that keeps losing ground to prices all point the same direction.
He warns that the cost of the Fed misjudging this moment won’t only be felt in financial markets alone.
“Every month the Fed holds rates higher than the underlying economy can comfortably carry is a month that shows up later in slower hiring, tighter household budgets and more caution from businesses.
“Investors need to be positioning for a central bank that may be behind the curve, not one that has everything under control.”
Nigel Green concludes that the coming weeks will test whether the Federal Reserve is willing to act on what sits beneath one strong month, rather than the print itself.
He says: “162,000 is the figure everyone is repeating today. The figures that should worry policymakers are the ones sitting underneath it.”
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