The Bureau of Labor Statistics reported on Friday that nonfarm payrolls increased 336,000 last month, following significant upward amendments to the data from the preceding two months. The unemployment rate remained steady at 3.8%, while wage growth maintained a moderate rate.
The Federal Reserve will undoubtedly remain cautious and significantly wary of upside potential risks, Luke Tilley, Chief Economist at Wilmington Trust Corp, told Bloomberg, noting that this situation aligns with their apprehensions regarding a “reacceleration in the economy.”
The Fed, under the leadership of Chair Jerome Powell, is currently contemplating whether there is a need for another increase in their benchmark lending rate, which has already been raised by over five percentage points within the past 19 months. At the most recent policy meeting in September, the rate was left unchanged, but projections from the meeting indicated that 12 out of the 19 officials were in favor of another rate hike within this year.
Following the release of the jobs report, the likelihood of an interest rate hike before the end of the year went up to 56%, a rise from the initial 48%, as per market pricing.
Federal Reserve officials are of the opinion that the labor market is still excessively active, leading to price surges that have driven inflation significantly beyond the central bank’s target of 2%.
Powell believes that to bring down inflation, the economy may need a phase of growth slower than the usual trend, along with a slight softening in labor market conditions.
This focus on inflation is crucial as it directly impacts the purchasing power of consumers and can obviously, influence the central bank’s monetary policy decisions. Notably, if inflation rises too rapidly, it could prompt the central bank to raise interest rates in an effort to cool down the economy and prevent it from overheating.
At the same time, Powell along with his colleagues on the Federal Open Market Committee have repeatedly stressed their intention to tread carefully with further actions as they approach the end of their rate-hiking cycle. This suggests a degree of hesitation regarding their actions at the upcoming meeting scheduled to conclude on November 1st.
The recent jobs report indicates that the economic momentum is still robust. However, central bank officials will be closely observing inflation reports as well, particularly the crucial consumer price report scheduled for release on October 12.
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