September is shaping up to be a critical month for the fate of the United States economy as the labor market recovery and the Federal Reserve’s plans to cut and hike rates remain in limbo.
hiring in the United States greatly slowed down last month because a resurgence of COVID-19 infections has delayed job gains. The non-farm payroll added 235,000 workers in August, largely missing the 728,000 expected jobs. More than 1.05 million jobs were created in July.
The disappointing reading came just days before the $ 300 per week extra unemployment benefit expired in the 25 states that had yet to end payments. Economists are eager to see the impact of the Child Tax Credit, which pays American families up to $ 3,600 per year per child, on workers re-entering the workforce.
This month’s data will be “fascinating to look at, in terms of the potential transition of these things (end of UI benefits, summer chill, potential drop in hospitalizations, kids returning to school, etc.) and how quickly the momentum toward full employment is picking up again, “said Rick Rieder, who oversees approximately $ 2.4 trillion in assets as director of global fixed income investments. at BlackRock.
Sluggish job growth could cause the Federal Reserve to delay cutting its $ 120 billion a month asset purchases or rate hikes. The Fed, at the onset of the pandemic, lowered interest rates to near zero and pledged to buy unlimited assets to cushion the economy amid the most severe slowdown in the aftermath. Second World War.
Federal Reserve Chairman Jerome Powell, during his speech at the Jackson Hole Symposium last week, said that although inflation had passed the “substantial further progress” test required for the central bank to end its asset purchases, employment growth has not been as robust.
Powell promised that the Fed would carefully assess the incoming data and that a reduction in asset purchases would not be a “direct signal as to when interest rates take off.”
For rate hikes to occur, the economy must exhibit “maximum employment” characteristics and inflation must “moderately exceed 2% for a period of time,” he added.
Some economists are already worried that the United States is experiencing a sharp but temporary slowdown.
“August is the month we think overall activity has slowed the most,” said a team of Morgan Stanley economists led by Ellen Zentner, highlighting a period of recovery from stimulus checks and ongoing disruption in the economy. Supply Chain.
The team cut its third-quarter gross domestic product forecast to 2.9% from 6.5%. They still anticipate 6.7% growth in the last quarter of the year.
President Biden on Friday called the economic recovery “durable and strong” and urged Congress to adopt his economic program.
Congress must “finish the work of adopting my economic program so that we can maintain the historic momentum that we have built over the past seven months,” Biden said. “It’s about investing in America’s future, not short–term stimulus. “