(New throughout; adds analyst quotes)
By Kate Duguid
NEW YORK, Sept 6 (Reuters) - A mixed employment report on Friday morning and an even-keel message from U.S. Federal Reserve Chair Jerome Powell left yields modestly lower, firming up market expectations the central bank will cut interest rates by the expected 25 basis points at its September meeting.
The Fed will continue to act “as appropriate” to sustain an economic expansion now in its 11th year, Powell said Friday in Zurich, repeating a pledge that financial markets have taken to signal a further reduction in interest rates.
“There was nothing out of the ordinary that would sway the market one way or the other to think there was something different about how he has been talking about the markets since Jackson Hole,” said Justin Lederer, Treasury analyst and trader at Cantor Fitzgerald.
“We are expecting a 25 basis point cut in two weeks,” said Lederer. Neither Powell’s remarks nor the employment data changed that perspective. “It did not put a 50 basis point cut in play.”
Treasury yields were modestly lower than where they had been going into the panel discussion, with the two-year yield down 1.6 basis points to 1.524% and the 10-year yield down 1.7 basis points to 1.548%. The Labor Department’s report earlier Friday showed job growth had slowed more than expected in August, but losses were cushioned by strong wage gains, which should support consumer spending and keep the economy expanding moderately amid rising threats from trade tensions.
“It was a generally weak report. The U.S. labor market has been the last line of defense amid softening global economic data and we can’t read too much into any single report. But this is one more piece of evidence that the Fed is behind the curve,” said Bill Merz, head of fixed income research at U.S. Bank Wealth Management.
The economy’s waning fortunes, underscored by an inversion of the U.S. Treasury yield curve, have been largely blamed on the White House’s year-long trade war with China. Washington and Beijing slapped fresh tariffs on each other’s exports on Sunday. While the two economic giants on Thursday agreed to hold high-level talks in early October in Washington, the uncertainty, which has eroded business confidence, lingers.
The jobs report is unlikely to change what the Fed does at its next monetary policy meeting. “The labor market continues to be the strongest point of data across the economic landscape, and that’s not what has been the catalyst for the Fed shifting to an easing bias,” added Merz. (Reporting by Kate Duguid; Editing by Dan Grebler and Alistair Bell)