In the most recent employment report released by the U.S. Bureau of Labor Statistics, signs of a slowing job growth and easing wage pressures have emerged. This development has bolstered Federal Reserve policymakers’ confidence in the economy’s resilience in the wake of the coronavirus pandemic. Last month, nonfarm payrolls saw an increase of 150,000, slightly below the pre-pandemic trend and marking only the third instance since December 2020. Meanwhile, hourly earnings experienced a 4.1% rise compared to the previous year, representing the smallest uptick since June 2021.
These figures, coupled with recent statements from Federal Reserve Chair Jerome Powell, have led financial markets to anticipate a potential Fed rate cut by May of 2024, with additional cuts projected for the following year. This shift in inflation expectations has been reflected in the drop in bond yields and 30-year fixed-rate mortgages, which now hover near 8%. However, Powell clarified that, at present, the Federal Reserve is not actively considering rate cuts. He emphasized that a rate hike remains a possibility if the Fed deems that current monetary policies are not sufficiently driving inflation towards the 2% target.
In the meantime, the average monthly gain in payrolls over the past three months has decelerated to 204,000, approaching the monthly average of 183,000 in the decade leading up to the pandemic. Richmond Federal Reserve President Thomas Barkin attributes this data to the normalization of business contacts he has engaged with. The pivotal factor influencing the Federal Reserve’s decision on the next rate hike will hinge on inflation performance leading up to the policy meeting scheduled for December 12–13. Both investors and analysts are largely aligned in their expectation that price pressures will continue to alleviate, prompting the Fed to maintain its current stance.
In conclusion, the latest employment report underscores the evolving landscape of job growth and wage pressures in the U.S. economy, providing valuable insights into the nation’s path to recovery in the aftermath of the pandemic. Federal Reserve policymakers face a delicate balancing act in their quest to ensure sustainable economic stability while addressing these key factors.
Source: Reuters
