Federal Reserve chair Jay Powell’s speech at the Jackson Hole symposium made it clear that the central bank believes its work is more or less done in taming inflation and the focus now is to keep the US labour market in rude health.

The change of tone puts August’s non-farm payrolls data on 6 September firmly into the spotlight. The prior month’s 114,000 print fell way short of market expectations and briefly upset the stock market which worried the Fed’s decision not to cut interest rates in August was a policy error.

The Bureau of Labour Statistics’ 818,000 downward revision to the number of jobs created in the 12-months to the end of July did not help matters.

The consensus forecast for August is for a bounce back in the number of jobs created to 165,000 and investors will be watching closely for signs of weakness, including the rate of unemployment which has been nudging-up in recent months.

A weak jobs report may rekindle speculation of a half a percentage point interest rate cut in September although that could also be interpreted as a sign the central bank believes it is ‘behind the curve’.

Complicating matters, a bigger cut also runs the risk of being interpreted as political, given the proximity of the US election in November.

The European Central Bank has already started cutting interest rates and it will get a reading of how the Eurozone economy performed in the second quarter on 6 September before its next policy meeting.

The consensus view is for another quarter of a percentage point cut in interest rates on 12 September after a flash reading by the European Statistics office Eurostat showed Eurozone inflation slowed to 2.2% in August, its slowest pace since July 2021 and close to the central bank’s 2% target.

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