Federal Reserve officials are likely to see the August jobs report as a sign that policy is working, but their job isn’t done.
Policy makers are scrutinizing labor market data, trying to get a sense of how much underlying momentum the economy has and how much interest rates need to be raised to keep growth in check and inflation under control. is.
The Federal Reserve has raised interest rates to the 2.25-2.5% range. in July After near zero in March, we are still waiting for signs that higher borrowing costs are cooling consumer spending and business expansion, lowering demand and giving supply an opportunity to catch up. Evidence of deceleration is spotty.
In that sense, the data released on Friday was encouraging. Job growth slowed, but not enough to suggest a recession was imminent. Unemployment has risen, but that’s largely because more people have joined the workforce, which should make it easier for businesses to fill vacancies.
“Overall, if you’re a Fed official now, there’s a lot to love,” said Wells Fargo economist Sarah House. “Employment remains strong, but on a more sustainable basis. Yes, the unemployment rate went up, and for good reason: we saw a surge in job seekers.”
Still, Mr. House said even one good report would not convince the Fed that it was time to back off from its efforts to curb inflation.
The central bank has made it clear that it is keeping a close watch on both employment and inflation data, which are encouraging but have yet to show any definitive signs of a slowdown. , we are considering an increase of half a point or three-quarters of a point. meeting September 20-21.
Higher interest rates work to counter inflation, in part by weighing on the labor market. As businesses face skyrocketing borrowing costs, business growth slows and cuts jobs. As job opportunities decline, competition for workers will ease, wage growth will slow, and private consumption will be restrained. As demand dwindles, businesses will be unable to raise prices, and inflation will fall.
That process will push up unemployment, and it will prove painful when people lose their jobs or struggle to find work. He argues that delaying hard choices now will only make things worse in the future.