US Labor Market Report Bolsters Fed's No-Rate-Hike Position


The deceleration in job growth and a decrease in wage pressures provide the Fed with renewed confidence that the US economy is effectively adapting to the aftermath of the COVID-19 pandemic. This, in turn, may help curtail inflation without necessitating further interest rate hikes.

Supporting this perspective is the data from the Labor Department, which reveals an increase of 150,000 nonfarm payrolls in the last month. This number remains below pre-pandemic levels and represents the third such occurrence since December 2020. Simultaneously, hourly wages experienced a 4.1% increase from the previous year, marking the smallest growth since June 2021.

These labor market trends have had a ripple effect on financial markets, causing bond yields to decline. Traders who keep an eye on Federal Reserve rate contracts have adjusted their outlook, now pricing in just a 10% likelihood of a rate hike by January, down from the previous 30%. Interest rate futures now suggest a higher probability of a Fed rate cut by May 2024, with several rate reductions anticipated in the upcoming year.

Despite these shifts in financial markets, US policymakers are not currently contemplating a reduction in interest rates. Federal Reserve Chairman Jerome Powell emphasized that the central bank is not yet contemplating rate cuts.

He stressed that they are awaiting further evidence demonstrating the economy's recovery from the pandemic's impacts and the efficacy of monetary policy in bringing down inflation to the targeted 2% level. Additionally, he mentioned that the rise in long-term borrowing costs could aid in achieving this goal.

President of the Federal Reserve Bank of Minneapolis. Neel Kashkari emphasized that it is still early to discuss any major changes, highlighting the need to continue monitoring data to assess progress in reducing inflation to 2%. Overall, they believe that the economy is gradually reaching equilibrium.

According to the statements from the president and CEO of the Federal Reserve Bank of Richmond, the report affirms the normalization of the labor market, with forthcoming inflation reports being a key factor.

President and chief executive officer of the Federal Reserve Bank of Atlanta Raphael Bostic said that he would keep a close eye on inflation data but believes the recent employment data confirms that existing interest rates are already quite restrictive.

The Fed's objective is to achieve the so-called soft landing for the economy, characterized by falling inflation while keeping risks to the labor market minimal. According to Fed Chairman Jerome Powell, they are making progress toward this goal.

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