Federal Reserve Chairman Powell has made it clear that the Fed is not in a hurry to lower interest rates, and is more inclined to make a small rate cut. However, this patience will be tested this autumn in the face of a series of highly anticipated employment reports set to be released starting this Friday.

If any new signs of deterioration in the job market emerge, even if policymakers expect rate cuts of 25 basis points in November and December respectively, the Fed may be forced to make another significant rate cut after an initial 0.5 percentage point cut.

Massive port closures due to dockworker strikes, as well as hurricane damage, could introduce new complexities to this calculation.

The latest employment market data to be released on Friday is expected to reinforce the trend of modest cooling. Economists predict that 146,000 jobs were created last month, with the unemployment rate remaining unchanged at 4.2%. This report roughly aligns with the creation of 142,000 jobs in August.

The focus may be on any revisions to previous employment reports, which have been consistently revised downwards. For example, the surprisingly weak employment report in July was further revised to only 89,000 jobs.

Investors will closely watch whether the downward revisions from August continue, which could be another sign that the job market is not as robust as it initially appeared.

Richmond Fed President Barkin said on Wednesday that the job market remains in a 'good state,' noting an average increase of 116,000 jobs per month over the past three months. He acknowledged that the hiring rate has dropped to the level of 2013, jobs continue to be revised downwards, and sectors like medical care that are recovering from pandemic shortages are experiencing a slowdown in growth.

"However, despite employers not actively hiring, they are also not laying off: the layoff rate is close to the lowest level in 25 years, and the number of initial claims for unemployment benefits remains very low," Barkin said. This environment of low hiring and low layoffs is unlikely to continue, but at the same time, I can say that it could evolve in any direction."

Powell said earlier this week that the Federal Reserve's Federal Open Market Committee is expected to continue lowering interest rates at a cautious pace.

"This is not a committee that is in a hurry to lower interest rates quickly," Powell said in his speech at the annual conference of the National Association for Business Economics. He also reiterated that the consensus of Fed officials outlined at the September meeting is to cut interest rates twice more this year, each time by 25 basis points.

Powell said, "This does not mean there will be more rate cuts of 50 basis points." However, he added that if the economic slowdown exceeds expectations, the committee can lower rates more quickly. He said, "We will do what is necessary based on the speed of action."

The Federal Reserve may face more complexity in the October jobs report to be released ahead of the meeting scheduled for November 6-7. The report may show temporary softening in job growth due to dockworkers' strikes, technical workers' strikes affecting Boeing aircraft production, and the impact of hurricanes.

JPMorgan economists estimate that the closure of East Coast and Gulf Coast ports could result in economic losses of $3.8 billion to $4.5 billion per day, some of which can be recouped after normal operations resume.

TD Cowen Inc 7.75% Senior Notes due 15/06/33 USD25 analyst Chris Krueger cited estimates saying that it could take up to six days for ports to return to normal operations for each day of the strike. A three-day strike would require 18 days to resolve.

Some observers suggest that the impact of strikes and storms will be temporary, and unless there are more fundamental changes, the Fed may overlook this.

EY's senior economist Lydia Boussour said, "However, any significant wage growth slowdown and sharp rise in unemployment could make Federal Reserve policymakers relying on data inclined to cut rates by 50 basis points again."

Goldman Sachs' chief economist Jan Hatzius stated that for the port strike to impact wage growth in October, it must continue throughout the entire period of the labor department's employment survey.

Hatzius said, if the strike persists through the reference period, it will directly lead to 45,000 job losses in October wage growth – which is the number of dockworkers on strike, but the effect will reverse after the strike ends.

However, Neil Dutta, the head of economic research at Renaissance Macro Research, expects two substantial rate cuts of 50 basis points in November and December due to the complexity brought by the strike and hurricane damages.

Dutta said, "Yes, these issues may be temporary, and are more visible in business surveys than household surveys, but given the risk balance, I believe the Fed should not overlook them. Since inflation issues are resolved, why take the risk?"

Editor/ping