The economy is showing promising signs of avoiding a recession in 2024 with a strong September jobs report.

• The U.S. economy emerges from the recession due to September's large payrolls, allowing the Fed to smoothly navigate a soft landing.
• The central bank's decision to eliminate virtually all big jobs would likely prevent any chance of repeating its half percentage point interest rate cut from September in the near future.
• The Fed's next meeting is scheduled for Nov. 6-7, immediately following the U.S. presidential election and a five-week period that will allow them ample time to process the information.

The U.S. economy emerges from the recession's shadows due to September's large payrolls, providing the Federal Reserve with a smooth path to a soft landing.

With inflation straining consumers' wallets, it's no surprise that the lingering concerns about the economy are causing some unease.

The current macroeconomic situation is favorable, with a slowing pace of price increases and declining interest rates, making it a crucial time for policymakers and politicians to act.

"U.S. Bank's chief economist, Beth Ann Bovino, stated that the soft landing we've been anticipating has been confirmed by Friday's nonfarm payrolls report. This provides more confidence that it will remain in place. Additionally, it increases the likelihood of a no-landing, meaning even stronger economic data for 2025 than we currently predict."

The number of jobs added in the US was higher than expected, with companies and the government contributing to a payroll increase of 254,000. This surpassed the Dow Jones consensus of 150,000 and was a significant improvement from August's revised numbers. This positive development reversed a trend of declining job numbers and alleviated concerns about a broader slowdown or recession.

The Federal Reserve's decision to cut interest rates by half a percentage point in September significantly reduced the likelihood of another such cut in the near future.

After the report, futures markets shifted their stance, predicting a near-certain probability of a quarter-point move at the November Fed meeting, followed by another quarter-point in December, according to the CME Group's FedWatch gauge. Prior to this, markets had anticipated a half-point increase in December, followed by equivalent quarter-point reductions at each of the eight Federal Open Market Committee meetings in 2025.

Not a perfect picture

If the labor market does not disappoint further, the Fed can proceed with a moderate pace through its easing cycle.

"If the economy continues to perform better than expected, the Fed may decide to slow the pace of rate cuts by the end of 2025, with a slightly higher exit rate than anticipated. This would be beneficial for both the Fed and the economy."

To be sure, there remain some blemishes in the jobs picture.

The majority of September's growth can be attributed to the typical contributors, such as food and drinking establishments, health care, and government, which have all received substantial financial support that has pushed the 2024 budget deficit to nearly $2 trillion.

The report's accuracy may be questioned due to technical issues, such as a low response rate from survey participants, which could affect future revisions.

The news was positive, but it raised concerns about the level of aggression required by the Fed.

Questions for the Fed

Bank of America economists questioned whether the Fed panicked after cutting interest rates by 50 basis points in September, while others speculated about the wild fluctuations and inaccuracies among Wall Street experts. David Royal, the chief financial and investment officer at Thrivent, believed it unlikely that the Fed would have made such a significant cut if it had known the report would be so strong.

""How do we consistently get this wrong despite all the information available?" questioned Kathy Jones, Charles Schwab's chief fixed income strategist."

The Fed will face a dilemma when determining its policy response at the FOMC meeting on Nov. 6-7, following the U.S. presidential election and a five-week period of digesting additional information.

The recent meeting suggested that the Fed may need to increase its estimate of the "neutral" rate of interest, which implies that benchmark interest rates will be higher than they have been in the past.

"What does the Fed do with this? Jones said, "Certainly, 50 basis points is off the table for the next meeting. I don't think there's any case to be made there." He added, "Do they pause? Do they do another 25 basis points because they're still far from neutral? Do they just weigh this against other data that might not be as strong? I think they have a lot of figuring out to do.""

Officials are likely to be content with the stable economy, less troubled labor market, and time to consider their next move.

"Despite some skepticism and negative consumer sentiment, Elizabeth Renter, senior economist at NerdWallet, observed a robust economy over the past few years. In an election year, emotions can run high, and every economic report or event can trigger intense reactions. However, the economic indicators suggest that the U.S. economy has been and remains strong."