Australia’s unemployment rate remained steady at 4.2 per cent in August, dashing hopes of an interest rate cut next week.

Over the month, 47,500 jobs were added to the economy, more than the 25,000 pencilled in by forecasters.

Ernst & Young chief economist Cherelle Murphy said the jobs market was still a source of inflationary pressure and one of the key reasons the Reserve Bank of Australia was holding off on delivering a rate cut.

Thursday’s labour force readout followed the US central bank cutting interest rates by 50 basis points, leaving borrowers wondering if the RBA would follow suit when it meets next week.

America’s “super-sized” rate cut was the first reduction in more than four years.

But Murphy said unlike Australia, the US had a weakening labour market and inflation nearing its 2 per cent target.

“The Fed’s 50 basis points move overnight should not be interpreted by Australian businesses as a sign that rates will come down faster here,” she said.

“With continued price pressures across the economy, a relatively tight labour market, and elevated government spending, our central expectation remains that the Reserve Bank will hold the cash rate steady for the remainder of the year.”

Treasurer Jim Chalmers said the RBA would consider the US cut when it meets next week, but would be primarily focused on inflation.

“When it comes to the Australian situation, we’ve got inflation coming off pretty substantially. The Reserve Bank will weigh that up,” Chalmers said on the Today show.

He said it was important to remember that rates went up more in the US than they did in Australia.

“Even after this interest rate cut overnight in the US, interest rates are still higher in the US than they are here,” he said.

“When the Reserve Bank meets next week, they will consider a whole range of things, including that. But they’ll be primarily focused on inflation as the government is.”

Chalmers said Australia’s jobs market had been resilient, a “pretty remarkable feat” in the context of a slowing economy and softening labour market.

Australia’s job gains were accompanied by a fall of about 10,000 in the number of unemployed people.

Australian Bureau of Statistics head of labour statistics Kate Lamb said the participation rate remained at its record high of 67.1 per cent.

The growth in employment increased the employment-to-population ratio by 0.1 percentage point to 64.3 per cent, just shy of its November 2023 record.

“The high employment-to-population ratio and participation rate shows that there are still large numbers of people entering the labour force and finding work, as employers continue to look to fill a more-than-usual number of job vacancies,” Lamb said.

The labour market has proven resilient to a broader economic slowdown engineered to bring down inflation, though it has been softening bit by bit.

Prime Minister Anthony Albanese said 978,000 jobs had been created since the government was elected, “while we are seeing wages increase, while we are seeing people being able to not just earn more, but keep more of what they earn through our tax cuts for every taxpayer”.

He said the government was putting downward pressure on inflation while also acting on cost-of-living pressures.

US rate cut

The Federal Reserve committee said it had gained greater confidence that inflation was moving sustainably toward 2 per cent.

Even though inflation “remains somewhat elevated”, the Fed statement said policy makers chose to cut the overnight rate to the 4.75 per cent to 5 per cent range “in light of the progress on inflation and the balance of risks”.

Policymakers expect the Fed’s benchmark rate to fall by another half of a percentage point by the end of this year, another full percentage point in 2025 and by a final half of a percentage point in 2026 to end in a 2.75 per cent to 3 per cent range.

The Fed’s policy meeting this week was its last before voters go to the polls in what is expected to be a close US presidential election on November 5.

The size of the initial cut will likely raise questions about the Fed’s strategy, and whether policymakers were merely trying to account for the fast decline in inflation since last year or ease concerns among some officials that the US job market may be weakening faster than desired or needed to ensure inflation fully returns to the Fed’s 2 per cent target.

It is about half a percentage point above that, and latest economic projections show the annual rate of increase in the personal consumption expenditures price index falling to 2.3 per cent by the end of this year and to 2.1 per cent by the end of 2025.

The unemployment rate is expected to end this year at 4.4 per cent, higher than the current 4.2 per cent, and remain there throughout 2025.

Economic growth is seen at 2.1 per cent through 2024 and 2 per cent next year, the same as in the last round of projections issued in June.

The Fed had held its policy rate in the 5.25 per cent to 5.50 per cent range since July 2023 as inflation fell from a 40-year high to a level approaching the central bank’s target.

-with AAP