The Fed funds futures markets for December 2015, looks for a rate of just 72 basis points, which means the market is even discounting the Fed's own average forecast of around 1.2 percent. "The risk is that we could see more rate hikes than the market is currently anticipating," Feroli said.
The proverbial Goldilocks "just right" jobs report this Friday would be a repeat of last month. In August, 209,000 jobs were created, but 329,000 more Americans entered (or in some cases reentered) the workforce. The result was to drive up the unemployment rate by a tenth.
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Yellen, of course, would be more than happy if all job seekers found work. But her current policy outlook seems based on the scenario where a strong job market brings people off of the sidelines in fairly large numbers. The result would be an unemployment rate that wiggles around the current 6.2 percent as not everyone who wants a job finds one in the month when they start looking, but the U.S. still produces more than 200,000 jobs a month.
The participation rate has clearly stopped declining since bottoming out at 62.8 percent in April. It actually ticked up a tenth last month. That will be something worth watching this Friday, with the understanding that the labor force is a highly volatile number that can go up by half a million one month and down 800,000, as it did in March and April this year. Yellen has argued that a meaningful part of the decline in the participation rate comes from people dropping out of the workforce because they are discouraged by the job market, and from early retirements and people going back to school. In Jackson Hole, Yellen suggested some of this could reverse.