US jobs report may rule out Federal Reserve rate hike

US employment growth slowed more than expected in August after two straight months of robust gains and wage gains moderated, which could effectively rule out an interest rate increase from the US Federal Reserve this month.

Nonfarm payrolls rose by 151,000 jobs last month after an upwardly revised 275,000 increase in July, with hiring in manufacturing and construction sectors declining. The unemployment rate was unchanged at 4.9%.

The report comes on the heels of news that the US manufacturing sector contracted in August, which had already cast doubts on an interest rate hike at the Fed’s policy meeting later this month.

“This mixed jobs report puts the Fed in a tricky situation. It’s not all around strong enough to assure a September interest rate hike. But it’s solid enough to engender a heated policy discussion,” said Mohamed el-Erian, chief economic adviser at Allianz.

Last month’s jobs gains, however, could still be sufficient to push the Fed to raise interest rates in December.

The rise in payrolls reinforces views that the economy has regained speed after almost stalling in the first half of the year.

Rate hike probabilities for both the September and December meetings rose after remarks last week by Fed chair Janet Yellen that the case for raising rates had strength- ened in recent months.

Following the report, financial markets were pricing in a 21% chance of a rate hike this month and a 58.6% probability in December, according to the CME Fedwatch tool.

The Fed lifted its benchmark overnight interest rate at the end of last year for the first time in nearly a decade.