US labor market statistics supports Reducing interest rates: the Fed's 'no rush' mindset.
On Friday, a government report showed strong job growth in February but also signs of labor market softening that might assist the Fed fight inflation. The Labor Department reported Friday that U.S. employers gained 275,000 jobs last month, exceeding experts' expectations of 200,000.
But the report's adjustments of preceding months' estimates revealed lower job gains in January and December than expected, and other data suggested a labor market rebalancing ongoing.
The U.S. unemployment rate reached 3.9%, its highest in two years, but remains below Fed-sustainable levels. In February, wages rose 4.3%, down from 4.4% in January. Fed policymakers won't consider that growth as compatible with their 2% inflation goal, but it's improving.
Fed Chair Jerome Powell testified on Capitol Hill this week that the economy is solid and policymakers are "not far" from lowering interest rates due to inflation's downward trend. "Friday's report indicating the labor market is strong but weakening slowly "will provide reassurance to the Fed that actual economic conditions remain broadly compatible with inflation converging durably towards 2%, and it will be prudent to reduce by June," said Krishna Guha of Evercore ISI.
Futures contracts that settle to the Fed policy rate now indicate an 80% possibility the Fed will lower rates by mid-June and a 25% chance on May 1. Traders predict a full percentage point of rate cuts by year's end, or four quarter-point reductions over the next seven Fed policy-setting meetings.
Nearly all Fed policymakers intend to retain the policy rate at 5.25%-5.5%, where it has been since July. Powell stated this week that range is likely to peak and is lowering prices. Before cutting rates, policymakers want more evidence that inflation is falling. At 2.4%, it's still above the Fed's 2% goal.
However, since the start of the year, inflation has been higher than predicted, causing several Fed policymakers to delay rate reduction. In February, Fed Governor Christopher Waller, whose monetary policy views have been prescient for years, said he wants two more months of data to verify inflation progress and that solid job increases indicate "no rush" to drop rates.
Policymakers continue to seek for signs the labor market is breaking under the highest U.S. policy rate in decades. Friday's jobs data won't reveal anything, analysts say. "It is clear that the pace of hiring is cooling, which was expected," stated Regions Financial Corp Chief Economist Richard Moody. "There is, however, nothing in the data, including the higher jobless rate, that tells us the labor market is on the verge of rolling over."
follow for more updates