Slowing U.S. job growth provides some relief to the Fed

Slowing monthly U.S. job growth and a rising labor force have provided some relief as the Federal Reserve looks for signs of an economic slowdown, but economists said later this month that It warns that the possibility of three consecutive 0.75% rate hikes cannot be ruled out.

The world’s largest economy added 315,000 positions in August, in line with economists’ expectations. This helped keep the unemployment rate anchored at a multi-decade low, compared to a revised down 526,000 jobs made in July. The number of jobs added in June was also revised down from about 400,000 to 293,000.

Despite the rise in August, the unemployment rate rose 0.2 points to 3.7%. As the working population increased by 786,000, he increased the number of people looking for work but still unemployed by 344,000. The labor force participation rate, which tracks the percentage of Americans employed or looking for work, rose as a result to 62.4%, but is still below pre-coronavirus pandemic levels.

Data released by the Bureau of Labor Statistics on Friday highlighted that the labor market remains strong despite the Fed’s most hawkish monetary tightening since the early 1980s.

Ajay Rajadyaksha, Global Research Chair at Barclays, said: “I think the Federal Reserve is happy that the labor force participation rate has risen, but the bigger problem for them is that 300,000 jobs a month is not enough. It’s still too fast,” he said.

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Faced with the highest level of inflation in 40 years, central banks are debating how high interest rates should be raised and how long to keep them at levels that actively constrain economic activity.

In the last four months, the target range for the federal funds rate has jumped from near zero to 2.25% to 2.50%, and many officials believe that raising rates near or above 4% at some point will help keep inflation in check. I think it is necessary to let

The Fed now faces the question of whether to extend its 0.75 percentage point rate hike until another meeting later this month, or move to a slower pace and implement a 0.5 percentage point adjustment at its September meeting.

“Clearly they have a lot of work ahead of them,” said Robert Dent, senior U.S. economist at Nomura. “[But] I think they know they can’t keep going up 75 basis points forever. ”

All eyes are on the next inflation report due later this month, but public comment is limited after the Fed enters its planned “blackout” period.

Dent said the report “is ultimately the most important piece of information for the Fed’s near-term discussions at this time.”

Most economists believe September’s 0.75 percentage point rate hike is definitely on the table. Especially in light of the very hawkish message from Chairman Jay Powell last month to “keep it going” until the central bank restores price stability.

Powell also acknowledged that the process is likely to continue with low growth, rising unemployment and “some pain” for households and businesses.

Citigroup economist Veronica Clark said a third consecutive 0.75% gain at the end of the month would endorse Powell’s message and help underscore the Fed’s commitment to sweeping away price pressures. said it would.

“There is no clear indication, certainly not in the inflation data, nor in the labor market data, which points to a consistently moderate underlying rate of inflation,” she said. rice field. “In that sense, we need to be more aggressive and given the option to do it again, [0.75 percentage point move]why not take it?

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Economists expect monthly job growth to slow, especially as most of the losses from the pandemic have been recovered. However, employers are still grappling with widespread labor shortages, forcing fierce competition to retain workers and hire new ones.

Data released earlier this week show there are still about two vacancies for every unemployed person, indicating that the extremely tight labor market has barely eased.

So the feedback is that wages across the country will rise sharply, forcing businesses to charge more for their products and services to cover these costs, and for workers to demand even higher wages. A looping concern has arisen.

Average hourly wages rose again in August, with monthly wages up 0.3% and 5.2% on an annual basis.

Jobs in professional and business services increased by 68,000 and jobs in the healthcare industry increased by 48,000. Employment in retail and manufacturing also increased, while employment in the leisure and hospitality sectors remained largely unchanged. The same is true for the construction and transportation industries.

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In financial markets, the interest-rate-sensitive two-year US Treasury bill yielded 0.11 percentage points to 3.41% after trading at around 3.48% just before the release of employment data. The S&P 500 gave up an early rise in the session to nearly level off during lunchtime trading in New York.

Additional reporting by Kate Duguid in New York

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