The employment report does not settle the debate over the Fed’s interest rate cut

Thursday’s report on job growth and unemployment in September highlighted the health of the labor market but did not clarify whether the Fed needs to bail it out by cutting interest rates.

The report, which showed that the labor market unexpectedly added 119,000 jobs in September, did little to change expectations about whether the Federal Open Market Committee will cut interest rates when it meets next December.

Financial markets were anticipating a 40% interest rate cut on Thursday morning, up from 30% the day before, according to CME Group’s FedWatch tool, which forecasts interest rate movements based on federal funds futures trading data.

Fed officials have been eager to obtain any set of data indicating the health of the labor market as they debate whether to cut interest rates to boost hiring with easy money or keep interest rates higher for longer to combat inflation.

The Fed’s dual mandate from Congress requires it to keep inflation low and employment high; Officials are sharply divided over whether high inflation or the threat of mass layoffs poses the greater threat to the economy right now. The 43-day government shutdown that ended last week delayed or canceled much of the data Fed officials needed to make that decision.

The Fed kept its key interest rate steady for most of the year in an attempt to curb inflation, cutting it by a quarter of a percentage point at both its September and October meetings after the labor market suddenly slowed in the summer.

Amid the data blackout, the September jobs report was a point of light but not enough to favor the “hawks” or “doves” at the FOMC. For one thing, the data was outdated. Since the reporting period, the Fed has cut interest rates twice and a government shutdown has rocked the economy.

On the other hand, the report itself was mixed, showing a slight increase in job creation and the unemployment rate, while wages continued to rise.

“The report may be a Rorschach test for a deeply divided Fed,” wrote Jake Krimmel, chief economist at Realtor.com. “Inflation hawks will point to still-strong payroll gains and wage growth approaching 4% annually as evidence that the Fed should avoid another cut too soon. Doves will counter that the unemployment rate is finally showing some worrying signs: trending toward 4.5% in September could mean we’re already there in mid-November, let alone December.”

Thursday’s report was the last major labor market data the Fed will get from government statistical agencies before its meeting on December 9-10. The November jobs report was delayed until Dec. 16 due to the shutdown and the October jobs report was canceled because the bureau did not conduct the surveys it uses to create the reports.