ANY investors who hoped last week’s US unemployment report would bring at least a smidgen of clarity to the Federal Reserve’s interest rates decision on September 17 will have been disappointed.

The Bureau of Labour Statistics could not have designed a more ambiguous and equivocal jobs report if it had tried. Both doves and hawks could find plenty on which to fasten, leaving markets on tenterhooks for a few more weeks.

On one hand, headline job creation fell short of expectations in August — 173,000 compared with forecasts for 217,000 — with private sector jobs particularly weak, and the labour force participation rate at a four-decade low of 62.6pc.

On the other, previous months were revised higher, bringing the average for the three summer months to a robust 221,000; the jobless rate fell to 5.1pc — the lowest since April 2008 and a level the Fed defines as full employment — and wages surprised positively. The broadest measure of unemployment also dipped to a seven-year low.

Confused US employment figures reveal a poor August but a strong summer overall

The confusion caused by the muddled data was apparent in the market’s reaction. Short-term Treasuries first rallied when investors clocked the disappointing headline figure, only to sell off once they decided the report did not preclude the Fed from lifting rates this month. Yet by the end of the day, investors appeared to decide tighter monetary policy was most likely off the agenda for September.

Brian Jacobsen, chief portfolio strategist at Wells Fargo Fund Management, says the market response was ‘perplexing’ but on balance it made the Fed and its chair Janet Yellen less likely to tighten monetary policy this month.

“People think it was just good enough to allow the Fed to hike, I think it was just bad enough to delay a hike,” he says. “Janet Yellen has a bias towards waiting, and this gives her an excuse.”

That means investors will have to gird themselves for more parsing of economic data to decide whether the Fed will act, such as other labour market gauges, retail sales and inflation, all of which are scheduled to be released before the Fed’s next meeting.

For now, investors are leaning towards another monetary policy reprieve. Fed funds futures indicate only a 30pc chance of lift-off in September, according to Bloomberg data, up from a low of 22pc at the peak of the August turmoil, but down from more than 50pc early last month.

Even if the Fed does tighten monetary policy this month, analysts, traders and fund managers disagree markedly on what impact this will have on markets.

One senior bond trader argued that after years of interminable debates, most money managers are keener for the US central bank to get the first hike over with, while stressing that it will lift rates only cautiously and slowly.

“The market has spent a lot of time worrying about it, but now it’s tired by all the hand-wringing and wants the Fed to get on with it,” he says.

That is the view of many longer-term investors, such as pension funds and insurers. Tod Nasser, investment chief of Pacific Life Insurance Company, is indifferent on whether the Fed moves in September or December. “Markets are prepared for it. What matters to us is not when it happens, but how many hikes we get between now and 2017,” he says.

Many of these institutional investors are confident the impact will be minimal, at least for the longer-maturity end of the US bond market where they are mostly active.

The 10-year and 30-year US Treasury yields have climbed from the lows of earlier this year, but remain very low in light of looming US rate increases, as many investors expect the ‘yield curve’ — the difference between short and long-term interest rates — to continue to flatten even as the Fed lifts rates.

But some analysts warn this could be complacent, pointing out that Fed officials have indicated they want the entire yield curve to steepen when they tighten monetary policy. Betting against the Fed managing this is risky, Mr Jacobsen points out.

“They are the biggest dog in the fight. They want a steeper yield curve and I think they’ll get it,” he says.

Published in Dawn, Business & Finance weekly, September 14th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play