The unemployment rate held steady in August at 4.2 percent, but employment growth remained ahead of market expectations of 47,000.

While the consensus was for an unemployment rate of 4.2 percent, employment was expected to peak at 25,000.

Commenting on the data, GSFM’s Stephen Miller suggested it was unlikely to lead to an immediate cut in RBA interest rates, arguing there was no significant deterioration in the labor market to justify a short-term policy change.

He believes any RBA rate cut this year is a "distant prospect" unless there is "some completely unexpected" - and at this stage "unlikely" - slowdown in inflation.

"The RBA's task of containing inflation continues to be frustrated by counterproductive government policies despite some tortured political commentary denying this fact," he said.

Miller criticized Australia's wage and industrial relations regulations, as well as excessive and "ill-constructed" government spending, particularly at the state level, noting that they were likely to exacerbate inflation by increasing aggregate demand.

"Since excess demand is a major driver of inflation, this government contribution is problematic, at least those elements that do not have the dampening and short-term supply side effects that perhaps income tax cuts do," he said.

“What they do do, however, is give the RBA some ability to exercise patience in considering downward adjustments to the interest rate. A misread is that fiscal slack has exacerbated inflationary pressures and delayed interest rate easing.

He maintains that February 2025 remains "the most likely time for the first key rate cut", but added that it could not be until May.

Likewise, HSBC's Paul Bloxham does not expect a rate cut until the second quarter of 2025. and sees only limited easing in 2025. Like Miller, he attributes strong job creation to public sector employment and high labor participation, with the labor market gradually loosening.

"Be prepared for a fairly large divergence between the RBA's cash rate and that of many other central banks, including the Fed," he warned.

"Still strong job creation and an economy operating near full capacity add to the challenge of sticky inflation in Australia and moderate rate cuts are unlikely to be on the agenda for some time to come."

Jobs print good news for RBA?

Anneke Thompson, chief economist at CreditorWatch, described the jobs print as "good news for the RBA", indicating the central bank is managing to avoid a rise in unemployment above its forecast of 4.3% by December 2024. and 4.4% by March 2025.

Thompson believes the RBA will keep a close eye on any future guidance indicating the labor force is set to weaken more than expected.

"So far, however, it could be argued that the RBA is successfully 'threading the needle' towards a soft landing from this inflationary period," she said.

However, unlike Miller and Bloxham, Thompson noted that while it was almost certain that the cash rate would remain unchanged after Tuesday's meeting, the US Federal Reserve's unexpected 50bp cut. increased the likelihood of an interest rate cut in November.

However, she added: "Assuming the economy continues to cool at a reasonably steady pace, I still expect the first rate cut to be in February 2025."

AMP's My Bui agreed with the expectation that rate cuts could come as early as 2025, but highlighted potential cracks emerging in the employment landscape.

Namely, an analysis of the latest jobs printouts showed that while employment rose by more than 47,000, the growth was driven by part-time jobs, not full-time jobs.

However, according to Bui, "it is probably not yet time for the RBA to cut rates".

"But looking ahead, all the leading jobs indicators tell us that labor demand is already weakening and will potentially worsen further, allowing the Reserve Bank to ease in early 2025," Bui said.

Krishna Bhimavarapu, APAC economist at State Street Global Advisors, offered a slightly different perspective.

Reflecting on the Fed's huge interest rate cut and Australia's unemployment data, Bhimavarapu said: "These developments and falling inflation mean the RBA may not [be] very far from seeing a path to a rate cut."

However, he admitted there was still a "gloomy chance" that a reversal could happen in the short term, especially given that the bank will meet a day before monthly CPI for August is published next week.

Major banks cut interest rates in December

CBA economist Gareth Aird remained the most bullish, delaying expectations of a rate cut by the bank by just a month, from November to December.

Earlier this week, the CBA forecast that the shortened Q3 24 average CPI would come in below the RBA's expectation of 2.7% in the 12 months to August. However, Aird said on Thursday, the recent pick-up in employment growth, combined with still relatively hawkish rhetoric from the RBA governor, meant "we now see December as the more likely month for the start of a normalization of the cash rate".

"August labor market data was stronger than we expected," Aird said.

"In other words, the recent strengthening of labor market data means that the 3Q24 contracted CPI average in line with our forecast is unlikely to be enough for the RBA to be willing to cut interest rates in November .”

Instead, Aird suggested that by December the RBA would review not only the critical CPI for the third quarter of 2024, but also the third quarter wage price index, October labor force data and national accounts for the September quarter, providing a comprehensive view of decision-making.

"We now believe that this fuller set of data will need to be seen and assessed by the RBA board if it is to be willing to join a host of other central banks in cutting rates in 2024," the economist said.

The risk to the revised request to start an RBA easing cycle in December is a later start date, namely February 2025, Aird admitted.

The CBA has made no changes to its baseline scenario of 125 basis points of policy easing through the end of 2025, which would bring the rate to 3.10 percent.

Aird noted that fiscal policy remains the main source of domestic uncertainty, particularly as Australia enters an election year.