The latest report from the U.S. Bureau of Labor Statistics reveals that job growth is gradually decelerating and wage pressures are tapering off, offering Federal Reserve policymakers newfound assurance that the economy is adapting to the shockwaves of the coronavirus pandemic. Nonfarm payrolls increased by a modest 150,000 last month, marking the third instance since December 2020 when the job growth fell slightly below the pre-pandemic trend.
Additionally, hourly earnings inched up by 4.1% from the previous year, representing the most modest increase since June 2021. These developments, coupled with recent statements from Federal Reserve Chair Jerome Powell, have prompted financial markets to anticipate a potential Federal Reserve interest rate cut by May 2024, with the prospect of several more cuts later in the coming year. These dwindling inflation expectations have manifested in the decline of bond yields and 30-year fixed-rate mortgages, which are now hovering at nearly 8%. However, Powell emphasized that, at present, the Federal Reserve is not contemplating rate cuts. He indicated that a rate hike might still be considered if the Federal Reserve believes that monetary policy has not made sufficient progress in reining in inflation to meet the 2% target.
In the meantime, the average monthly increase in payrolls over the past three months has slowed to 204,000, a far cry from the peak in the summer of 2021, which saw a staggering 708,000 average monthly job gains. This figure is approaching the monthly job gain average of 183,000 observed in the decade leading up to the pandemic. Richmond Federal Reserve President Thomas Barkin attributed this data to his regular interactions with business contacts, which suggest that the job market is normalizing.
The crucial determinant for the Federal Reserve’s next rate hike hinges on the performance of inflation leading up to the December 12–13 policy meeting. Investors and analysts appear to be largely aligned in their expectations that price pressures will continue to ease, thereby keeping the Federal Reserve on hold. The diminishing demand for additional economic stimulus, in conjunction with the deepening economic recovery, underscores that the U.S. economy is regaining its footing, and the pandemic’s lingering effects are subsiding, without necessitating further Federal Reserve rate increases.
Despite the growing consensus on a potential rate cut in the future, the Federal Reserve’s stance remains firmly rooted in vigilance. Powell emphasized that any future rate moves will be contingent on inflation trends, making the upcoming policy meeting in December a pivotal event for shaping the direction of U.S. monetary policy.
In conclusion, the latest report on job growth and wage pressures reflects a shifting economic landscape in the wake of the pandemic. As job growth slows and wage pressures cool, Federal Reserve policymakers are closely monitoring these indicators to navigate the path forward for the U.S. economy.
Source: Reuters
