Tuesday, October 3, 2023
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Surging U.S. labor force could ease pressure on Fed to hike rates sharply

(Bloomberg) — A strong August jobs report means the Federal Reserve will continue to hike rates aggressively, although a surge in the U.S. labor force may give central bankers the option to back off a bit.

Nonfarm payrolls increased last month 315, Unemployment Surprise Participation climbed to a six-month high of 3.7%, the first increase since January, a Labor Department report on Friday showed.

They saw an increase in September,” said Diane Swonk, chief economist at KPMG. While the surge in the workforce was “wonderful,” she said, “ I don’t think they want to show at any point that they’ve stopped being determined to actually lower inflation. “

Central bank governors have raised rates by 75 basis points at their last two meetings, Chairman Jerome Powell has said , they might consider another move of this scale at their September meeting. 000-21, depending on the data. The Fed will receive a final important report in September 20 a week before the meeting — Consumer Price Report for August.

Investors are still pricing in the possibility of a rate hike 75 basis points in September, despite this The odds of a rate hike are lower than they were before the report. Bets on where rates will peak have reacted more clearly, rising in the second quarter of next year basis points to around 3.9%.

“As long as the next CPI report stabilizes until the next CPI report, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. Decades and swearing they’ll stick with it, despite the public pain it may cause.

‘What was seen as good news this morning is that the economy is not continuing to move away from the Fed,” said Vincent Reinhart, chief economist at Dreyfus and Mellon. ” However, it still requires the Fed to keep running to keep up with the economy. Job growth remains unsustainable.

Reinhardt, a former senior Fed official, said that the 75 basis point hike is still the benchmark for the next rate hike. He said: “It does not Not so rigid because they responded to a key data point before — that’s CPI,” he said.

Bloomberg Economics said…

“Report Not addressing the question of whether the Fed will raise rates by 50 or 75 basis points in September, but – although we expect August ‘s CPI report will be very weak – we still see risks leaning slightly towards a 75 basis point move. “

— Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger, Economists

Powell has said the economy may need to take some “pain,” low At the same time, he and other Fed officials have been hopeful that they can engineer slower growth without tipping the economy into recession.

“This adds to the soft landing , and enable the Fed to step back,” said Neil Dutta, director of U.S. economic research at Renaissance Macro Research LLC. “Wage growth has slowed. “

While the ongoing mismatch between labor supply and demand has led to companies raising wages, the report shows some encouraging signs that the two are becoming more aligned. Average hourly earnings up from last month 0.3%, up 5.2% from a year earlier.

The labor force participation rate—the percentage of the population that is working or looking for work—improved to 50.4%, the rate of worker age 25-54 the largest increase since June 2022 to 82.8%. Teen participation also surged.

“This is really what the Fed wanted,” “More and more people are coming back into the labor force,” former Fed governor and University of Chicago professor Randall Crosner said on Bloomberg TV. This has helped reduce tension in the market. ”

©2022 Bloomberg LP



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