Economics
Fed close to pulling off the elusive economic soft landing in 2024 after great September jobs report
A hiring sign is posted on the exterior of Urban Outfitters at the Tysons Corner Center mall on August 22, 2024 in Tysons, Virginia.
Anna Rose Layden | Getty Images
September’s outsized payrolls boost takes the U.S. economy out of the shadows of recession and gives the Federal Reserve a fairly open glide path to a soft landing.
If that sounds like a Goldilocks scenario, it’s probably not far from it, even with the lingering inflation concerns that are straining consumers’ wallets.
A gravity-defying jobs market, at least a slowing pace of price increases and declining interest rates puts the macro picture in a pretty good place right now — a critical time from a policy and political standpoint.
“We’ve been expecting a soft landing. This just gives us more confidence that it seems to remain in place,” Beth Ann Bovino, chief economist at U.S. Bank, said after Friday’s nonfarm payrolls report. “It also increases the possibility of a no-landing as well, meaning even stronger economic data for 2025 than we currently expect.”
The jobs count certainly was better than virtually anyone figured, with companies and the government combining to boost payrolls by 254,000, blowing away the Dow Jones consensus for 150,000. It was a big step up even from August’s upwardly revised numbers and reversed a trend that started in April of decelerating job numbers and rising concern for a broader slowdown — or worse.
Beyond that, it virtually eliminated any chance that the Federal Reserve would be repeating its half percentage point interest rate cut from September anytime soon.
In fact, futures markets reversed positioning after the report, pricing in a near-certain probability of just a quarter-point move at the November Fed meeting, followed by another quarter point in December, according to the CME Group’s FedWatch gauge. Prior, markets had been looking for a half-point in December followed by the equivalent of quarter-point cuts at each of the eight Federal Open Market Committee meetings in 2025.
Not a perfect picture
No more, though, as the Fed, barring any more disappointments from the labor market, can stake a moderate pace through its easing cycle.
“If we continue to see a stronger than expected economy that may give the Fed reasons to slow the pace of rate cuts through 2025 with that exit rate being a little bit higher than they currently expect, all with the economy still maintaining its strength,” Bovino said. “That would be good news for both the Fed and the economy.”
To be sure, there remain some blemishes in the jobs picture.
More than 60% of the growth for September came from the usual suspects — food and drinking establishments, health care and government — that have all been the beneficiaries of fiscal largesse that has pushed the 2024 budget deficit to the brink of $2 trillion.
There also were a few technical factors with the report, such as a low response rate from survey participants, that could cast some clouds over Friday’s sunny report and lead to downward revisions in subsequent months.
But broadly speaking, the news was very good and raised questions over just how aggressive the Fed will need to be.
Questions for the Fed
Bank of America economists, for instance, asked “Did the Fed panic?” in a client note referencing the half percentage point, or 50 basis point, cut in September, while others wondered about the wild vacillations and miscalculations among Wall Street experts. David Royal, chief financial and investment officer at financial services firm Thrivent, speculated that “it is doubtful” the Fed would have cut by so much “if it had known this report would be so strong.”
“The question becomes, how does everybody keep getting it wrong?” said Kathy Jones, chief fixed income strategist at Charles Schwab. “How is it we can’t get this number right with all the information we get?”
Jones said the Fed will have a dilemma on its hand as it figures out the proper policy response. The FOMC next meets Nov. 6-7, right after the U.S. presidential election and following a five-week span during which it will get plenty more to digest.
Some commentary after the meeting suggested the Fed may have to raise its estimate of the “neutral” rate of interest that neither boosts nor restricts growth, an indication that benchmark interest rates will settle at a higher place than they have in the recent past.
“What does the Fed do with this? Certainly, 50 basis points is off the table for the next meeting. I don’t think there’s any case to be made there,” Jones said. “Do they pause? Do they do another 25 [basis points] because they’re still far from neutral? Do they just weigh this against other data that might not be as strong? I think they have a lot of figuring out to do.”
In the meantime, though, officials are likely to be content knowing that the economy is stable, the labor market isn’t in nearly as much trouble as had been suspected, and they have time to weigh their next move.
“We’ve witnessed a pretty remarkable economy over the past few years, despite some naysayers and lackluster consumer sentiment,” said Elizabeth Renter, senior economist at NerdWallet. “In an election year, passions run high and every economic report or event can garner intense reaction. But the economic aggregates tell us the U.S. economy has been and is strong.”
Bank of England Governor Andrew Bailey attends the central bank’s Monetary Policy Report press conference at the Bank of England, in the City of London, on May 8, 2025.
Carlos Jasso | Afp | Getty Images
Bank of England Governor Andrew Bailey told CNBC on Thursday that the U.K. was heading for more economic uncertainty, despite the country being the first to strike a trade agreement with the U.S. under President Donald Trump’s controversial tariff regime.
“The tariff and trade situation has injected more uncertainty into the situation… There’s more uncertainty now than there was in the past,” Bailey told CNBC in an interview.
“A U.K.-U.S. trade agreement is very welcome in that sense, very welcome. But the U.K. is a very open economy,” he continued.
That means that the impact from tariffs on the U.K. economy comes not just from its own trade relationship with Washington, but also from those of the U.S. and the rest of the world, he said.
“I hope that what we’re seeing on the U.K.-U.S. trade side will be the first of many, and it will be repeated by a whole series of trade agreements, but we have to see that happen of course, and where it actually ends up.”
“Because, of course, we are looking at tariff levels that are probably higher than they were beforehand.”
In Bank of England’s Monetary Policy Report released Thursday, the word “uncertainty” was used 41 times across its 97 pages, up from 36 times in February, according to a CNBC tally.
The U.K. central bank cut interest rates by a quarter percentage point on Thursday, taking its key rate to 4.25%. The decision was highly divided among the seven members of its Monetary Policy Committee, with five voting for the 25 basis point cut, two voting to hold rates and two voting to reduce by a larger 50 basis points.
Bailey said that while some analysts had perceived the rate decision as more hawkish than expected — in other words, leaning toward holding rates elevated than slashing them rapidly — he was not surprised by the close vote.
“What it reflects is that there are two sides, there are risks on both sides here,” he told CNBC.
“We could get a much more severe weakness of demand than we were expecting, that could then pass through to a weaker outlook for inflation than we were expecting.”
“There’s a risk on the other side that we could get some combination of more persistence in the inflation effects that are gradually working their way through the system,” such as in wages and energy, while “supply capacity in the economy is weaker,” he said.
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