Last Friday, we learned that the US economy added 528,000 jobs in July, that the unemployment rate declined to 3.5%, and that average earnings grew by 5.2%. With roughly 153 million people working in the US, we are at the same level of employment we were in February 2020 before the global pandemic. All told, these numbers were much stronger than the consensus had expected. The Federal Reserve has repeatedly raised interest rates in an attempt to cool the economy down to combat elevated inflation, but this acceleration in job growth in an indicator that the US economy continues to hold strong despite these efforts. The consequence for markets is we should expect the Fed to continue to raise rates. In fact, markets have begun pricing a 75 basis points increase in interest rates in September. Additionally, rates may need to stay higher for longer than markets were previously anticipating. Later this week we will receive Consumer Price Index (CPI) inflation data. June CPI headline inflation was 9.1% and the consensus expects that number to be at 8.7% in July. If expectations are on target, this will be the long-awaited decline in inflation we’ve been waiting for.
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