Bloomberg Economics chief U.S. economist Anna Wong said the U.S. August nonfarm payrolls report, due next Friday on Sept. 4, has a meaningful chance of showing another monthly contraction. If that happens, payrolls would post two straight months of negative growth, and Wong said there is no precedent in modern Federal Reserve history for a rate hike under those conditions.
The comment came after Fed Chair Kevin Warsh struck a hawkish tone at Jackson Hole. Reuters-cited CME FedWatch data showed the market-implied probability of a September rate hike jumping from 35.4% to 55.7% in a single day.
Wong’s call runs against consensus forecasts
Wong said August payrolls could turn negative again. That stands in clear contrast with prevailing market estimates. FactSet’s median forecast calls for 110,000 jobs added, while Capital Economics expects 90,000, with the unemployment rate holding at 4.2%.
If payrolls do print below zero, the miss would not only be on magnitude but on direction. Wong’s broader argument is that a second straight negative payroll report would put the labor market in a pattern that the Fed has not historically met with higher rates in the modern era.
July already broke lower
The article points to the July payroll report as the starting point. U.S. nonfarm payrolls fell by 23,000 in July, the first negative reading since February this year. The market had expected an increase of 80,000.
Revisions were also weak. Combined payroll figures for May and June were revised down by 103,000. Average hourly earnings rose 3.2% year over year.
According to the article, BlockTempo checked the underlying employment series in the St. Louis Fed’s FRED database and found that the difference between June and July payroll levels matched the reported 23,000 decline.
Since 1954, there were 20 cases of two straight negative months
To test Wong’s statement that there was effectively no precedent, the article says BlockTempo ran the historical series through FRED data. Starting from July 1954, the first point at which effective federal funds rate records are available, the U.S. has seen 20 independent events in which nonfarm payrolls fell for two consecutive months.
Looking at the average monthly effective federal funds rate in the three months after each event, only two cases showed an increase of more than one quarter-point, or 25 basis points. Those two instances were July 1954 and June 1957, both in the 1950s.
The article adds that the Fed had not yet adopted today’s target-range framework at that time, and rates moved more directly with funding market conditions. On that basis, those two episodes are difficult to classify as policy-driven rate hikes in the modern sense.
After October 1957, none of the remaining 18 cases was followed by a hike. Every one of them was either flat or lower. The set includes periods tied to the 1974 oil crisis, the 2001 dot-com bust, the 2008 financial crisis and the 2020 pandemic.
On that historical record, the article says the Fed has not lifted rates when the labor market has been shrinking for two consecutive months.
Warsh’s Jackson Hole remarks lifted September hike odds above 50%
The timing matters because Warsh had just shifted rate expectations. On Aug. 28, he delivered his first Jackson Hole speech as Fed chair and took a hawkish line.
He said recent inflation data were still not enough to prove that price pressures had truly come down, and he repeated that the 2% inflation target was 「不可动摇、也不容谈判」. In the same speech, he confirmed that the Fed would abandon forward guidance and stop pre-signaling its next move.
Markets repriced quickly. Reuters-cited CME FedWatch data showed the probability of a September rate increase rising from 35.4% on Thursday to 55.7%. The federal funds target range is now 3.50% to 3.75%, and the next Federal Open Market Committee meeting is scheduled for Sept. 15-16.
When the August payrolls report will be released
The U.S. Bureau of Labor Statistics is scheduled to publish the August nonfarm payrolls report at 8:30 a.m. Eastern Time on Sept. 4, which the article notes is 8:30 p.m. Taipei time. Current market estimates call for payroll growth of 90,000 to 110,000, with the unemployment rate at 4.2%.
Market move mentioned in related coverage
The article also notes, in related coverage, that Bitcoin fell below $78,000 and Ether dropped under $2,500 after Warsh’s remarks.