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Bloomberg News / Landov
The September employment report will strengthen the Fed's confidence in its current policy of raising short-term interest rates at a steady rate of a quarter point every three months said economists.
"It's stable as long as it goes for the Fed," said Kevin Logan, chief US economist at HSBC.
"The report checks and reinforces their current perception of what is happening," he added.
Employment growth slowed in September but the unemployment rate fell to 3.7%, the lowest rate since December 1969. Wages declined slightly from 2.9% in August to annual rate of 2.8% in August, a record since the end of the recession.
Lily: US unemployment rate reaches its lowest level in 48 years
"I do not think the Fed's strategy will be impacted at all," said Brian Bethune, professor of economics at Tufts University. Decelerating pace of employment growth "takes some pressure off to accelerate rate hikes," Bethune said.
Gus Faucher, Chief Economist of PNC Financial Services Group, said the Fed would certainly raise rates again in December and that "we are likely to see further increases unless something changes drastically".
For now, he said he thought the Fed would increase rates twice in 2019, but there is a clear risk that "we could get three or four."
See: The employment report remains consistent with the strength of the economy
The strong rise in bond yields this week will not deter the Fed, Logan said.
The yield on 10-year treasury bills
TMUBMUSD10Y, + 1.82%
before retiring, reached a new high in seven years of 3.229%. Yield jumped 15 basis points this week.
"A move of 15 basis points is not a big problem in the bigger picture," he said. The Fed has announced 75 basis points of rate increases over the next nine months, he said.
"I do not think they think it's a deterrent," he said.
The sharp rise in rates this week suggests that the bond market may have decided that a neutral rate could be a little higher than expected, Logan said.
See: Bond markets may have overreacted to Powell's "far from neutral" remark
Fed Chairman Jerome Powell has diluted the Fed's statement to give the central bank the freedom to react to data, Bethune said.
"We are now moving more into a discretionary policy area" and moving away from any rules-based monetary policy system, he added.
"Powell said that there are many things we do not know about and that they do not want to lock themselves in," he said.
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