Jobs report gives Fed more ammunition to keep rates rising

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JThe latest jobs numbers have been better than expected, with experts saying the Federal Reserve will stay the course and continue to aggressively raise interest rates to keep inflation under control.

The economy beat expectations and added 390,000 jobs last month. Additionally, the country’s unemployment rate has remained at 3.6%, an ultra-low level that is roughly where it was just before the pandemic started wreaking havoc on the economy more ago. two years.

May was the first month to reflect the two rate hikes the central bank led, and the fact that payrolls rose more than expected gives the Fed ammunition to keep pushing rates ever higher, especially after several previous months of positive job gains.

“The strong May numbers will only encourage the Federal Reserve to continue with its more aggressive monetary tightening as inflation remains near a 40-year high,” said Andrew Viteritti, head of trade and policy. regulation at the Economist Intelligence Unit.

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The last time inflation was this high, Ronald Reagan was president. Consumer prices rose 8.3% in the 12 months to April, down slightly from the explosive 8.5% recorded the previous month, but still well above the target of 2 % of Fed.

The Fed raised its interest rate target by a quarter of a percentage point in March, the first time in years. He later hiked rates by half a percentage point last month, a move akin to two simultaneous rate hikes and an aggressive approach taken for the first time in more than two decades.

The Fed’s rate hike cycle is unlikely to subside in the near term given the country’s runaway inflation. Markets forecast half-point hikes in June and July, essentially four rate hikes in two months

“Essentially, you could see this as a license for the Fed to continue its move toward higher interest rates. To me, that’s the headline,” said Brian Marks, executive director of the Entrepreneurship Program and of Innovation from the University of New Haven. Washington Examiner Friday.

Some economists fear that by raising interest rates, the Fed could push the economy into a recession, especially given the scale of the hikes and the speed with which they are being carried out. Still, senior central bank officials have signaled they have no intention of deviating from their course.

Ahead of Friday’s jobs numbers, Lael Brainard, the Fed’s vice chair, dismissed the idea that the central bank would suspend hikes out of concern for labor and stock markets.

“Right now it’s very hard to see the case for a break,” she told CNBC this week. “We still have a lot of work to do to get inflation back to our 2% target.”

The statement was noteworthy because Brainard, who was appointed by Chairman Joe Biden, is known to be a bit more dovish than some other Fed members.

The fact that she suggested there was no pause on the horizon before the figures were even released shows how determined the central bank is to get inflation under control despite the effect it could have on other parts of the economy.

Desmond Lachman, a senior fellow at the American Enterprise Institute, said the new numbers only lend more credence to Brainard’s argument and strengthen the case for aggressive tightening.

“Today’s report gives no reason for the Fed to change what it is doing. When they meet in a few weeks… you can be sure they will raise interest rates by 50 basis points and continue balance sheet reduction,” Lachman told the Washington Examiner.

It’s worth noting that unemployment is a lagging indicator, which means the report doesn’t capture the true reality of the labor market right now, but rather what it has been in recent weeks. That’s why economists will continue to focus on next month’s jobs report and weekly jobless claims reports.

Inflation has quickly become the No. 1 economic concern and political problem in the United States

Republicans have accused Democrats and the Biden administration of injecting too much fiscal stimulus into the economy, and Democrats have blamed the price increases on supply chain issues and the war in Ukraine. Many economists believe it is a combination of these and other factors.

On Friday, Biden delivered a speech after the release of jobs numbers in which he touted the strength of the labor market amid rising prices. He hinted that the better-than-expected jobs numbers offer more support for the Fed to lower inflation.

“I know that even with the good news today, a lot of Americans are still anxious, and I understand that feeling,” Biden said. “Thanks to the tremendous progress we’ve made on the economy, Americans can fight inflation from a position of strength.”

Biden tried to underscore his administration’s focus on the rising prices consumers face when he called a rare White House meeting earlier this week with Fed Chairman Jerome Powell, which included also Treasury Secretary and former Fed Chair Janet Yellen.

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The president also issued an op-ed in which he stressed the importance of giving the Fed the space and independence it needs to drive down prices through its monetary policy levers.

“My predecessor debased the Fed, and past presidents sought to influence its decisions inappropriately during times of high inflation. I won’t do that,” Biden wrote in the The Wall Street Journal. “I have appointed highly qualified people from both sides to lead this institution.”

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