Fed officials keep tightening slowing despite strong employment data

Federal Reserve officials indicated on Friday that they would still consider a smaller interest rate hike at their next policy meeting, despite new data showing another month of robust job gains and only small signs of progress in reducing interest rates. inflation.

The United States created 261,000 new jobs last month, the Labor Department said in its employment report, well above the 200,000 gain economists expected in a Reuters poll. The September data was revised up to show 315,000 jobs created, instead of the 263,000 previously reported, but the unemployment rate rose from 3.5% to 3.7%.

Job vacancy figures show that “the job market remains tight,” Richmond Fed President Thomas Barkin told CNBC shortly after the data was released, adding that he was nevertheless ready to act. more “deliberately” on the pace of future rate hikes, even if he keeps an open mind about the outcome of the December monetary policy meeting.

“When you hit the brakes, you think about driving in a very different way… sometimes you act a little more deliberately, and I’m ready to do that,” Barkin said. “And I think the implication of that should be a slower rate of rate increase, a longer rate of rate increase, and potentially a higher end point.”

The U.S. central bank raised interest rates by 0.75 percentage points on Wednesday for the fourth straight meeting, but signaled it expects to switch to smaller increases in borrowing costs at its next meeting as it gives the economy time to absorb the fastest interest rate squeeze in 40 years.

However, Fed Chair Jerome Powell hardened that message at a news conference after the end of this week’s two-day meeting with a warning that rate hikes, while possibly smaller, will persist long enough for rates to fall. remain louder than officials previously thought and that any speech in a pause is “very premature”. The Fed’s benchmark interest rate is currently in the range of 3.75% to 4.00%.

Boston Fed Chair Susan Collins, a voting member of the Federal Open Market Committee (FOMC) this year, echoed this new mantra.

“With rates now in restrictive territory, I believe it is time to shift the focus from the pace of rate increases to the plateau, in other words, determining what is sufficiently restrictive,” Collins said in a speech to the Brookings Institution.

Fed remains open to slowdown

The Fed is trying to smooth the job market just enough to contain the high level of available job openings and wage growth, which have helped fuel inflation, without causing a sharp rise in unemployment, which would make the bank need to slow the pace of elevations sooner than desired.

Persistently strong employment data also makes it harder for the central bank to ease, making it more likely to raise borrowing costs so much that it ends up crashing the economy and triggering a painful recession.

“Demand remains solid,” Barkin said. “We’re not getting a lot of help on the supply side, participation is low. And I think companies are just holding back workers.”

The Fed has had little success in lowering the highest inflation rate in 40 years, with its preferred measure running at more than three times the central bank’s 2% target. Attention now turns to next Thursday’s release of monthly consumer price index data, which will provide a fresh read on the Fed’s inflation battle.

Friday’s employment report offered some indications of progress, most notably the slowdown in employment gains in some sectors. The domestic survey portion of the report also showed a sharp drop in employment, while the rise in the unemployment rate suggests easing in labor market conditions.