Employment Data Don't Ease Rate Fears --- Payrolls Expand by 310,000, While Hourly Wages Increase at a Fast Pace
WASHINGTON -- The July employment report did little to ease concerns that the Federal Reserve will soon raise interest rates to further reduce inflationary pressures.</br></br>While July unemployment remained steady at 4.3%, hourly wages rose faster than at any time since January, and the economy added a higher-than-expected 310,000 nonfarm jobs. The report appears to bolster the view of those Fed officials who are advocating higher rates -- perhaps another quarter percentage point -- when the policy committee meets Aug. 24.</br></br>For some Fed watchers, the jump in nonfarm jobs was the most troubling aspect of the report. Most economists had predicted gains in the range of 200,000 to 230,000 new jobs, well below the actual figure.</br></br>Financial markets flinched at the news. After rising slightly in early morning trading, the Dow Jones Industrial Average finished the day at 10714.03, down 79.79. The bond market, which is much more sensitive to inflationary fears, reacted more severely. The benchmark 30-year bond fell 1 20/32 to 87 15/32, pushing the yield to 6.168%, its highest level since November 1997.</br></br>Financial futures traders, however, substantially increased their bets that the Fed would raise rates. Based on the movement of futures contracts as of midday, they were betting with 86% certainty that a rate increase would occur, up from 64% late Thursday.