The US economy added 263,000 jobs in September, raising investor fears of a further interest rate hike by the Fed.
The U.S. Department of Labor announced Friday that the U.S. economy added 263,000 jobs in September, slightly less than analysts had expected.
Why the drop in the unemployment figure is not good news for Wall Street.
However, the unemployment rate fell from 3.7% in August to 3.5% last month, the lowest in fifty years. The US labour market remains very strong, which is normally a positive economic indicator, but in a market where inflation remains high, i.e. above average wage growth, full employment poses a risk of overheating the economy and can sustain, or even worsen, inflation as it sustains demand for consumer goods, while reducing inflation requires a reduction in consumption.
In order to obtain this decrease in consumption, the American central bank (the Fed) wants to make "credit" less attractive for consumers, and in the current context of very high inflation, it will raise interest rates once again, which means that it is almost certain that the Fed will approve a fourth consecutive 0.75 point increase when it meets at the beginning of November. A rate hike means a more expensive dollar, which means higher costs for companies, which impacts stock prices.
While the US economy is still creating jobs in absolute terms, the drop in the unemployment rate is also partly due to a smaller workforce, as the number of Americans looking for work has declined since the pandemic. There are now 1.7 jobs for every worker. In this context, investors fear that the Fed's policy of rate hikes, without fully countering inflation, will eventually plunge the economy into recession.
Fed officials are aware of this, but they prefer rising unemployment to inflation. They believe that a rise in unemployment will be less violent than inflation at the level of the 1970s.