A stronger-than-expected jobs report for the month of September has some increasing the odds that the Federal Reserve won’t cut interest rates next month.
But Kevin Hassett, director of the president’s National Economic Council, said that would be a “very bad time” for the central bank to pause cutting because the government shutdown dented economic growth in the fourth quarter.
Hassett said he expects the government shutdown will knock 1.5 percentage points off GDP in the fourth quarter. At the same time, he pointed to the Consumer Price Index for September that showed inflation came in better than expected.
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“I don’t think that [pausing rate cuts] would be prudent. I think that the headwind for the fourth quarter is really strong,” Hassett told Yahoo Finance on Thursday in an interview, noting that the September jobs report wasn’t strong enough to offset the other factors.
Hassett said airline executives have complained to him about how disruptive the government shutdown was for travel and that many Americans have opted not to travel for Thanksgiving as a result.
“So I don’t really think that we have a full handle on how destructive this shutdown will be for fourth quarter GDP,” he said. “We’re super optimistic about the future, but I think it’d be a very bad time for the Fed to pause.”
Payroll growth bounced back in September with 119,000 jobs added, compared with economists’ expectations for 51,000. The rebound comes after jobs were revised to a loss of 4,000 jobs in August from a gain of 22,000. That follows a volatile trend where job creation went negative in June, increased in July, decreased again in August and rebounded again in September.
Hassett pointed out that even as most of the job growth stemmed from healthcare and education sectors, construction jobs are beginning to increase as new factories incentivized by the administration’s tax bill are breaking ground and workers are needed.
“The fact that we’re beginning to see people breaking ground on all those new factories that we expect to come up over the next year or two is a really positive sign for the outlook going forward,” he said.
While payroll growth boomeranged, the unemployment rate rose a tenth of a percentage point to 4.4% from 4.3% — a level it had been inching toward over the past few months. Hassett chalked up the increase in the unemployment rate to more workers coming off the sidelines to look for a job as the labor force participation rate showed an uptick.