DWS: U.S. employment growth rebounded significantly in September, expected to hold off on rate cuts in December

DWS Chief U.S. Economist Christian Scherrmann stated that the U.S. labor market report for September shows a significant rebound in job growth, with non-farm employment increasing by 119,000 positions. Job growth was mainly concentrated in healthcare, food and beverage, and social assistance. On the other hand, transportation and warehousing, as well as federal government sectors, recorded job losses. The unemployment rate rose slightly by 0.1% to 4.4%, primarily driven by a labor force participation rate increase of 0.1% to 62.4%, with this increase evenly distributed between employment and unemployment figures. Average hourly wages rose by 0.2%, indicating that the decrease in immigration has not led to additional inflationary pressures.

October data will be released on December 16 along with the November report, so Federal Reserve officials will not have access to the latest data before the next policy meeting. Although the rise in the September unemployment rate provides some policy justification for an "insurance-style" rate cut in October, the resilience of job growth, combined with the lack of immediate data, makes it difficult for decision-makers to swiftly advance monetary policy normalization.

Overall, DWS expects the Federal Reserve to maintain interest rates in December. However, as the impact of tariffs on inflation is expected to gradually fade, DWS remains optimistic, anticipating that the Federal Reserve will lower the policy rate to neutral levels by next year, although weakness in the labor market is likely to persist