The Federal Reserve has another cause to ease off on the enthusiasm for interest rate cuts after the U.S. economy added 216,000 jobs in December, which was more than expected by economists.
The most important U.S. jobs data since the Fed signalled last month that it was done rising rates due to mounting indications of lowering inflation is Friday’s report from the Labour Department. A stock market surge at year’s close and expectations of a first rate decrease in March were both boosted by the turnaround.
The Federal Reserve has made an effort to lower expectations. The minutes of the Federal Reserve meeting that were made public this week revealed that, due to the increased economic uncertainty, there was no specific plan for reducing monetary policy.
No further urgency to change course soon will be added by the most recent jobs report to the Federal Reserve’s agenda.
“Will there be additional grounds for the Fed to cut based on the labour market or not?” Prior to the announcement, Skanda Amarnath, the executive director of Employ America, made a statement.
The ongoing power struggle between the Federal Reserve and Wall Street can be better understood in light of today’s jobs data.
The economists’ expectations and the results
Bloomberg surveyed economists who had predicted a net rise of 175,000 in nonfarm payrolls in December and a little increase in the unemployment rate to 3.8%. The employment rate remained constant at 3.7%, but the number of jobs added was 216,000, according to the Labour Department.
There was a gain in employment rather than a decrease from month to month, with November’s figure revised down to 173,000 from 199,000 on Friday. Also reduced from 150,000 to 105,000 for October.
During an unforeseenly robust period of job creation that endured despite elevated interest rates, payroll employment increased by 2.7 million in 2023, or an average monthly rise of 225,000.
Treasury Secretary Janet Yellen stated on CNN Friday, “What we are seeing now I think we can describe as a soft landing.” She was referring to the idea that the economic cycle is slowing down in a way that avoids a harsh recession.
The Federal Reserve also keeps an eye on wages, which have been on the rise recently. In December, average hourly wages increased by 15 cents to $34.27, reflecting a 4.1% gain over the previous 12 months.
According to White House Council of Economic Advisers Chair Jared Bernstein, “Wages have been beating prices for a while now, and that is extremely important on so many levels, particularly when it comes to the buying power of workers’ paychecks.” Bernstein shared this information with reporters on Friday.
The significance of the matter
Prior to the data, those who kept tabs on the Federal Reserve thought that rate cuts couldn’t be accelerated without a more substantial downturn, that is, something below 100,000 jobs added.
The range of 150,000 to 200,000 is considered healthy, according to Noel Dixon, a senior macro strategist at State Street. “When you fall below 100,000… people will begin to feel threatened. After that, we can begin to discuss a hard landing.
The market may have overestimated its ability to absorb six rate cuts, according to Dixon.
“The U.S. economy is still pretty strong by any standard,” he stated.
An alternative argument is that the Federal Reserve should move faster to prevent an economic disaster.
Inflation data for January should be carefully examined by the Fed. If the trend from the previous several months is confirmed, according to Amarnath of Employ America, “it makes a lot of sense to start to tee up a really active conversation about cuts.”
“You will encounter difficulties at some point if you persist with these exorbitant interest rates,” he warned. “For the past 30 years, this has been a fundamental error on the part of the Fed.”
The perspectives of corporations and voters
While most SMB CEOs are pessimistic about the state of the American economy, a recent poll by JPMorgan Chase found that their fears of a recession are fading. Conducting their survey in late December and early January, Economist/YouGov found that a small majority of Americans still do not approve of President Joe Biden’s economic policies.
According to Martha Gimbel, a research scholar at Yale Law School and former member of Joe Biden’s Council of Economic Advisers, although the economy has had a “gang-busters recovery” since the pandemic ended, many areas are still struggling.
Before Friday’s jobs report, Gimbel analysed the data and discovered that, in a COVID-19 rebound, the performing arts, spectator sports, and allied businesses had the second-highest rate of job creation over the past year, followed by scenic and sightseeing transportation.
The expansion of the labour market might be seen as proof of this, according to her.
“The majority of us have completely forgotten about the pandemic,” she remarked. “However, not all sectors have achieved this feat.”
