What Friday’s jobs report means for the Fed’s inflation battle

WASHINGTON (AP) — For most Americans, Friday’s job report for september Businesses continued to hire at a brisk pace, the unemployment rate fell for the first time in half a century and average wages rose.

But for the Federal Reserve, the jobs report highlights how little progress they have made in fighting inflation. Recession risks will also increase as the Federal Reserve is likely to continue to raise borrowing costs rapidly.

employer did Slightly lower hiring last month, Average wage growth has slowed. But neither has fallen fast enough to slow the Fed’s efforts to curb inflation, economists said.

As a result, the Fed’s next meeting in November is likely to see four massive rate hikes of 3/4 percentage points in a row. (Central banks typically raise interest rates in quarter-point increments.)

The Federal Reserve’s interest rate hikes are aimed at cooling the economy and keeping inflation in check. This rise has led to higher borrowing costs across the economy, most notably housing, credit card and business loans.

US interest rate hikes have disrupted global markets and caused a plunge in US stocks. On Friday, Stocks fall furtherthe S&P 500 Index fell nearly 3%.

But the Fed, struggling to beat the worst inflation in 40 years, is focusing more on the jobs market than on the financial markets. The underlying inflation rate shows that prices are still rising.

“There is still work for the Fed to do to cool the labor market and mitigate the inflationary pressures that arise from it,” said Sarah House, an economist at Wells Fargo.

Here are five ways Friday’s report will influence how quickly the Fed will continue to raise rates.

Falling unemployment doesn’t help

For the Federal Reserve, the drop in the unemployment rate from 3.7% to 3.5% was a mixed bag at best. The unemployment rate fell as more Americans found jobs and some unemployed gave up looking for work. That is, they are no longer counted as unemployed.

As the pool of people seeking work dwindles, it puts pressure on employers to offer higher wages to attract and retain employees. Businesses pass on at least some of these higher costs to consumers, thereby raising prices and driving inflation.

The Federal Reserve has suggested that the unemployment rate needs to be at least 4% to keep inflation under control. Some economists say the unemployment rate needs to be even higher. In any case, the low unemployment rate suggests further interest rate hikes to come.

September’s mostly strong jobs report also underscores the view of many Fed policymakers that the US economy is healthy enough to withstand a rate hike. That means there may be little reason to delay rate hikes any time soon.

Hiring slows, but not enough

The Federal Reserve wants to improve the balance of supply and demand in the job market. That means more people looking for work and less demand for workers.

There has been limited progress on both sides. This week, the government reported: the number of available jobs dropped sharply That’s about 15% below the highest recorded in March. Still, store openings remain at historically high levels.

Federal Reserve Board member Christopher Waller noted Thursday that economists expect 260,000 jobs to rise in September. That’s pretty close to the actual numbers in Friday’s report.

Such increases are “lower than in recent months, but very healthy compared to past experience,” Waller said. ”

Too few Americans looking for work

With more people competing for jobs, it becomes easier for employers to fill positions without offering higher wages. This will reduce inflationary pressures without the need for many job cuts.

“Increasing the supply of labor is a painless way out of the inflationary pressures currently coming from the job market,” House said.

But there has been little such progress in recent months, according to Friday’s report. The percentage of Americans working or looking for a job dipped to 62.3% in September, and he’s pretty much leveled off all year.

Fed officials said in recent speeches that they do not expect more people to return to work. Many older workers who retired early in the past two years may remain on the sidelines.

A reduced supply of workers means the Federal Reserve (Fed) feels compelled to cut its need for workers even more than it otherwise would. This suggests that even more significant rate hikes are on the horizon.

There are still plenty of catch-up jobs

Another challenge for the Fed is that despite tightening credit at its fastest pace in 40 years to squelch demand, many companies are pushing more and more to keep up with modest consumer demand. It means you may need workers. Such pressure could also force the Fed to raise rates to cool demand.

For example, Jes Pettit, an executive at the Hilton hotel chain, told Fed officials at a roundtable two weeks ago that consumer demand was not the main driver of his company’s hiring. Instead, it seeks to maintain a basic minimum staff for a smaller pool of workers in fierce competition from other hotels.

Waller asked him.

“I think so,” Pettit replied.

wages fell slightly

For the Fed, the only bright spot in Friday’s jobs report may be a slowdown in wage growth, but it’s not clear if that trend will continue.

Hourly wages rose at an annualized rate of about 3.6% in both August and September, down from about 5.6% earlier this year. If this slowdown persists, credit tightening pressure on the Fed could ease. Wage growth at this level is roughly in line with the Fed’s 2% inflation target.

Steven Friedman, senior economist at investment firm Mackay Shields, said wages numbers “are a silver lining for the Fed” if the pace continues.

But “I don’t think the Fed can afford to wait that long,” Friedman said.