As the Fed tightens up, job growth in the US slows down. Please use the article-sharing features accessible via the share button at the article’s top or side. Sharing articles you’ve copied violates FT.com’s terms of service and copyright policy. When you want more rights, send an email to [email protected]. When a subscriber uses the gift article service, he or she can send up to ten or twenty articles to friends and family each month.
The Federal Reserve’s aggressive interest rate increases squeezed economic activity in December, leading to a slowdown in US job growth for the fifth consecutive month. This was the case even though the US labor market remained historically tight.
Lower than the revised 256,000 increase registered in November and significantly lower than last year’s peak of 714,000 in February, the world’s largest economy added 223,000 jobs in the final month of 2022. The majority of economists had predicted a rise of 200,000.
After the boost in December, monthly job growth in 2022 averaged 375,000. Since August, the monthly increase in payrolls has decreased.
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Despite moderation in job growth, the labor market remains resilient, suggesting the Federal Reserve will likely keep interest rates at current levels for the rest of the year.
The Bureau of Labor Statistics reported that the unemployment rate unexpectedly dropped to 3.5%, returning to a historic low.
“This is still a very tight labor market,” said Veronica Clark, an economist at Citigroup. An economist sees a low unemployment rate as a sign of potential wage growth in the future. If you want to spread the word about an article, click the “share” button near the article’s title or other prominent location. Sharing articles you’ve copied violates FT.com’s terms of service and copyright policy. When you want more rights, send an email to [email protected].
When a subscriber uses the gift article service, he or she can send up to ten or twenty articles to friends and family each month. But investors’ bets that the Fed wouldn’t have to be as aggressive with its policy tightening, in the end, sparked a stock market rally after wage growth slowed in December. ISM data released on Friday showed a sharp decline in services activity, which boosted stocks even further. After a whole morning of trading in New York, the S&P 500 was up 1.6%, and the Nasdaq Composite was up 1.4%.
The yield on the 2-year Treasury note, which is particularly sensitive to shifts in interest rate expectations, fell by 0.19 percentage points to 4.26 percent, resulting in a significant increase in the price of the debt instrument. The yield on the 10-year Treasury note, widely used as a benchmark for borrowing costs worldwide, dropped to 3.58 percent on Tuesday.
The Federal Reserve is actively trying to cool the labor market and reduce demand for new hires to reduce the price pressures that have driven inflation to multi-decade highs in the United States. As part of one of its most aggressive campaigns, the Federal Reserve has gradually increased its benchmark policy rate from near zero to just below 4.5 percent since March.
Price pressures have taken hold in the services sector of the economy, even though the worst of the inflation shock appears to have passed. Gita Gopinath, the first deputy managing director at the IMF, argued that inflation in the US has not “turned the corner yet” in an interview with the Financial Times this week, urging the Fed to “stay the course” in terms of tightening.
Lisa Cook, a governor at the Federal Reserve, expressed caution in her Friday remarks, stating that recent inflation data looked “favorable” but that it should not be “put too much weight” on. She has indicated that she is “keeping close tabs” on labor costs, which she believes will significantly impact inflation in the future.
Wage growth is still far outpacing the Federal Reserve’s 2% inflation target despite a worker shortage that Fed officials warn will not be easily reversed.
If you want to spread the word about an article, click the “share” button near the article’s title or other prominent location. Sharing articles you’ve copied violates FT.com’s terms of service and copyright policy. When you want more rights, send an email to [email protected]. When a subscriber uses the gift article service, he or she can send up to ten or twenty articles to friends and family each month. Visit https://www.ft.com/tour for details. https://www.ft.com/content/aca45a96-8923-445b-b91a-0b81e093b1cd It was slower than expected and 0.3 percent lower than the prior period that average hourly earnings increased by in December. It’s up 4.6% from the previous year. The percentage of the U.S. population actively seeking or employed remained unchanged at 62.3%.
The Federal Reserve can rest assured that “inflationary pressures have peaked,” according to Peter Williams of Evercore.
In December, sixty-seven thousand new jobs were created in the leisure and hospitality industry. In addition to the 28,000 new jobs in construction, the healthcare sector added 55,000 workers.
Retail, manufacturing, transportation, and warehousing were among the industries that added the fewest jobs.
Vice President Joe Biden commented on the report, saying that the recent increase in employment signals “a transition to steady and stable growth.”
Although there is a “cost-of-living squeeze,” the president of the United States noted that “historic gains” in employment and unemployment were giving workers more power and American families more breathing room.
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Those in charge of monetary policy at the Federal Reserve have admitted that reducing inflation will cause unemployment to rise. Most Fed officials expect the unemployment rate to rise to 4.6% this year and 4.7% next year if the benchmark policy rate rises above 5% and is held there for an extended period, according to the most recent individual projections published by the Fed.
On Thursday, outgoing Kansas City Fed President Esther George said, “Holding [above 5 percent] until we get evidence that inflation is coming down is the message we’re trying to put out there.”
This week, Minneapolis Fed President Neel Kashkari echoed similar sentiments, saying he anticipates another increase in the federal funds rate from the central bank in the coming months. This year, he will participate fully on the Federal Open Market Committee, which sets monetary policy. If you want to spread the word about an article, click the “share” button near the article’s title or other prominent location.
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Federal funds futures traders generally anticipate the Fed will move towards the so-called “terminal” level in smaller increments than the half-point and 0.75 percentage point rises it has used thus far in this tightening campaign. CME Group estimates a 65% chance of a rate hike of 0.25% at the meeting in February.
Tom Barkin, president of the Richmond Fed, said on Friday that it makes sense to steer more deliberately as they work to bring inflation down now that forward-looking accurate rates are favorable across the curve.
Economists express concern that significant additional job losses may occur if the Fed goes ahead with its plans. Last month, those surveyed for a joint poll by the Financial Times and the Initiative on Global Markets at the University of Chicago Booth School of Business predicted that unemployment would rise to at least 5.5% in 2019 as the economy entered a recession.
