Some economists expect the Fed to be bolder than the market expected, after a surprisingly strong jobs report in July. The economy added 528,000 jobs in July, more than double what had been expected, and the unemployment rate fell to 3.5% from 3.6%. Economists had expected job growth to slow from the previous month, and then continue to decline in the coming months. Wages were also worrisome to economists, who had expected a slowdown rather than a hotter figure. Average hourly wages jumped 0.5% for the month and 5.2% from the same period last year. The Dow Jones estimate was a 0.3% gain for the month, and a 4.9% year-over-year increase. “This is exciting. For the Federal Reserve, this is another 75 basis point increase,” KPMG Chief Economist Diane Sonk said. Many economists expected the Fed to slow the pace of rate increases to a half point in September, but Swonk said that number made it likely for a three-quarter point increase. One basis point equals 0.01 percentage point. Rick Rieder, President of BlackRock, wrote: “The strength in today’s numbers leaves the base case assumption that the Fed will probably have to raise rates another 75 basis points from here unless the CPI report shows some dramatic weakness that looks very unlikely in the future. this stage.” Global Fixed Income Investment Officer. Economists at JPMorgan said they now expect a 75 basis point rise in September and two additional quarter point increases in November and December. “Today’s numbers should calm recession fears but amplify fears that the Fed has a lot of work to do,” they wrote in a note, adding that the Fed’s inflation fears would be heightened by the jump in wages. Economists also noted that a case could be made for a bigger hike in September if there was more hot data, but they don’t expect the Fed to take that much boldness. JP Morgan noted that “unless the data falters, there can be an argument to go above 75 basis points at the next meeting.” “They seem to have an aversion to ripping the bandage off. So far they also seem to hate hanging out between meetings.” Stocks fell and bond yields rose after Friday’s report. Treasury yields are moving inversely to their price, and closely watched Treasury yields were at 2.85% in morning trading, above their previous week high and in key technical territory. “This is a report that says the Fed has not had a significant impact in slowing domestic labor market conditions,” said Michael Gaben, chief economist at Bank of America. “This is a report that says the Fed has more work to do.” Economists at Bank of America revised up their forecast for a Fed rate hike, adding another quarter point to the hikes this year. Economists had expected a 50 basis point rise in the federal funds rate for September, followed by a 25 basis point increase in November. They are now expecting a 50 basis point rise, or half a point, in November as well. They left expectations of a quarter point increase in December unchanged. The debate over the Fed’s hike path will continue around next week’s CPI, which is expected on Wednesday, Gaben said. Headline CPI inflation is expected to decline to 8.7% from 9.1% in June. Core prices, excluding energy and food, are expected to rise 6.2% year over year, up from the 5.9% pace in June. “I think it’s fair to say that energy prices have peaked in the near term, but it’s not clear if underlying price pressures have arrived,” Gaben said. Federal money futures immediately reversed expectations for a more hawkish Fed policy after the jobs report. According to Peter Bokfar, chief investment officer at Bleakley Advisory Group, October futures were pricing in 68%, up 75 basis points in September, sharply above expectations of 18% before the report. Boockvar said the market also priced an additional 21 basis points of gains for next June, just below another quarter point increase. The federal funds futures contract is priced at 3.5% over the fed funds for the upcoming June. “Obviously the CPI will be key. It’s going to be huge,” Bokfar said. “The pressure is going to keep going. I think people will be watching the moderation we’ve seen in the prices of goods and the acceleration we’ve seen in services.” Sonk said she will also watch medical costs rise in an upcoming inflation report. Health care was a strong area for job growth in July, adding 70,000 workers.