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El-Erian: The Next Jobs Report 'Could Influence The Fed'

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El-Erian: The Next Jobs Report 'Could Influence The Fed'

As August comes to a close, investor attention will now focus on Friday's monthly job report — and for good reason.

Mohamed El-Erian wrote in an op-ed published on Bloomberg whether the coming jobs report could influence the Federal Reserve's decision to raise interest rates. The economist argued that typically a single jobs report isn't by itself enough to determine Federal Reserve policy, but the upcoming report "could well come very close to being the exception."

El-Erian noted recent job reports topped expectations, especially the labor market. Meanwhile, the Fed's Chair Janet Yellen said on Friday in a speech that the case for an interest rate increase "has strengthened" in the past few months.

However, El-Erian suggested that the case for an interest rate hike is "not yet a done deal," as the overall domestic economic picture is "mixed," and the international environment is "rather fragile and uncertain."

Related Link: Kinahan: Yellen's Comments Not A Surprise, Will Add Focus To Jobs Number

With that said, El-Erian argued that the upcoming employment data could heavily influence if the Federal Reserve initiates a new interest rate hike.

Assuming the Fed gathers immediately after Friday's report, El-Erian suggested the Fed should raise interest rates by 25 basis points only if the jobs report shows a creation of 180,000 jobs or more in August, a steady increase in the rate of growth of wages and a participation rate that is unchanged or doesn't increase the current 4.9 percent unemployment rate.

On the other hand, the Fed should "avoid" boosting interest rates if there were less than 120,000 jobs created in August, wage growth dips or stagnates and there are signs of additional labor market slack.

Bottom line, the August labor market won't be the only set of data determining Fed policy, since the committee will gather three weeks after the release of the jobs report, and new economic data will be released over the time gap. Nevertheless, the jobs report will certainly play an "influential" role.

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Posted-In: Bloomberg Interest RatesAnalyst Color Economics Federal Reserve Analyst Ratings Media General Best of Benzinga

 

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