Read More: US Employers Add 315,000 Jobs as More Workers Join Labor Force

“You could still flip a coin on how big of an increase they do in September,” said Diane Swonk, chief economist at KPMG LLP. While the surge in the labor force was “wonderful,” she said, “I don’t think they want to show at any point in time that they have stopped in their resolve to really get inflation down.”

Central bankers raised rates by 75 basis points at their last two meetings and Chair Jerome Powell has said another move of that size could be on the table when they meet Sept. 20-21, depending on the data. The Fed will get one final important report — the consumer price readout for August — on Sept. 13, a week prior to the meeting.

Investors are still pricing in the likelihood of a 75 basis-point hike for September, though odds of such a hike declined a bit from prior to the report. Bets on where rates will peak showed a clearer reaction, shifting up by 10 basis points to the vicinity of 3.9% in the second quarter next year.

Read More: Traders Pare Fed-Hike Bets After Jobs; Treasury Curve Steepens

“Today’s jobs data point skews the odds towards a 50 basis-point rate hike in September so long as the next CPI report notes stable to low-ish core inflation as well,” said Guy LeBas, chief fixed income strategist for Janney Montgomery Scott in Philadelphia.

Fed officials have been aggressively raising interest rates to cool the hottest price pressures in nearly four decades and have vowed they will keep at it despite the likely pain this will cause the public.

‘What has been taken as good news this morning is that the economy is not continuing to run away from the Fed,” said Vincent Reinhart, chief economist at Dreyfus and Mellon. “However, it still requires the Fed to keep running to keep up with the economy. Employment gains are still not sustainable.”

Reinhart, a former senior Fed official, said a 75 basis-point hike is still the baseline for the next meeting. “It is not as hardened because there is a key data point that they responded to previously — and that is CPI,” he said.

What Bloomberg Economics Says…

“The report doesn’t settle the issue of whether the Fed will raise rates by 50 or 75 basis points in September, but — even though we expect a very soft CPI report for August — we still think the risks tilt slightly toward a 75-basis point move.”

— Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger, economists

— To read more click here

Powell has said the economy could need to sustain some “pain” with below-trend growth to reduce inflation. At the same time, he and other Fed officials have held out hope they could engineer slower growth without tipping the economy into a recession.

“This increases the odds of a soft landing and allows the Fed to back off,” said Neil Dutta, head of US economic research at Renaissance Macro Research LLC. “Wage growth has moderated somewhat.”

While a persistent mismatch between labor supply and demand has driven businesses to bid up wages, the report shows some encouraging signs that the two are coming more in line. Average hourly earnings rose 0.3% from the prior month and were up 5.2% from a year earlier.

The labor force participation rate — the share of the population that is working or looking for work — advanced to 62.4%, and the rate for workers ages 25-54 rose by the most since June 2020 to 82.8%. Teen participation also surged.

“This is really what the Fed is hoping for,” former Fed governor and University of Chicago professor Randall Kroszner said on Bloomberg TV. “More people are coming back into the labor market. That helps to reduce the tightness of that market.”

The report could also have implications for how high the Fed will need to raise rates as well as for how long.  Powell at Jackson Hole said the September decision would be based on the “totality” of the incoming data, while also pledging not to prematurely ease.

“Maybe it will allow the Fed to reflect on the bigger picture and indeed the ‘totality’ of the data at the September FOMC,” said Thomas Costerg, senior US economist at Pictet Wealth Management. “I think they could find some middle ground between hawks and centrists and slow to 50, but put on the table the possibility of hiking for longer if the economy stays resilient and inflation high.”