The United States economy ended last year with the labor market increasingly recovering from the effects of the COVID-19 pandemic and at the same time making it difficult for Central Bank policymakers who still expect wage and employment growth to decline to appropriate levels.
The addition of 216,000 jobs to US nonfarm payrolls in December and wage growth of 4.1% both exceeded expectations. It indirectly left the central bank still looking for clear signs of a slowing labor market and prompted traders to reduce their odds that the Fed will begin a rate cut at its meeting as early as March.
Monthly job growth of around 100,000 and annual wage growth of around 3% are the Fed's rough guidelines for growth in every respect that would be considered consistent with the Fed's 2% inflation target.
The Fed kept interest rates at its December meeting in the current range of 5.25% to 5.5%. But signals issued after the December 12-13 session indicated that no further rate hikes were needed, while new projections showed that a majority of policymakers expected a rate cut of three quarters of a percent to be appropriate by the end of the year. But despite all that, the job market remains a puzzle. - puzzle.
Minutes of the Fed's December meeting noted that "some" Fed policymakers have begun to question how much longer tight monetary policy is needed, and "point to risks to the economy"
The Fed under Chairman Jerome Powell has so far tried to avoid making that tough choice, with inflation continuing to fall despite rising jobs and wages. This may reflect changes in the way the economy works. Fed policymakers now estimate that an unemployment rate of around 4.1% is consistent with inflation remaining stable at the 2% target. However, concerns remain over job growth or worker productivity that could pull that ambition down, at least in the short term.
"Job growth is clearly slowing," said Skanda Amarnath, Executive Director of Employ America, pointing to adjustments in previous months' wage additions based on the business survey and weaker employment levels. "The Fed should balance their focus from inflationary challenges to downside risks that the labor market may face in 2024."
