It is already clear that the Fed is ready to raise interest rates by a quarter point this month, as it looks to make borrowing more expensive in an effort to cool the economy.
The head of the central bank, Jerome Powell, explained this week.
But the February employment data released on Friday will inform policy makers as they discuss plans to shrink the central bank’s balance sheet (something that could further derail the economy) and as they make estimates of how quickly interest rates will increase in the months. Before.
The latest employment report showed that the economy added 678,000 jobs last month. But more importantly, from the Federal Reserve’s point of view, it showed unemployment fell to 3.8 percent, workers joined the workforce and wage growth stabilized after a series of rapid increases.
The data reaffirms that the labor market is vibrant, and may also – slightly – reduce concern that the nation is at the beginning of an inflationary spiral in which wage and price increases are steadily pushing each other upward. But for now, it is likely to keep central bankers on track with the plan Powell laid out this week.
“It’s good news, it didn’t really change anything that President Powell was sort of prearranged by the Fed, that day,” said Charles Evans, president of the Federal Reserve Bank of Chicago. He said on CNBC Friday.
While Mr. Evans continues to act on a cautious tone, suggesting that wages and prices may continue to rise, the new data could have little impact on how some officials think about interest rate expectations in the coming months and years. The Fed will release forecasts at its quarterly session Economic Outlook Summary Combined with its March policy decision, and given that an interest rate hike is already expected, these policy expectations are likely to take center stage.
The Russian invasion of Ukraine has made the path ahead more uncertain, so the economic forecast will be more of a rough blueprint than a hard plan. But for now, the economy is looking strong — and officials are likely to expect a series of policy changes in 2022 and into 2023.
But more modest wage growth, if it continues, could give the Fed a little more breathing room to steadily but not frantically withdraw support. As jobs proved plentiful and workers difficult to find, wages began to rise rapidly, attracting the attention of the Federal Reserve. Rapid wage gains made it more likely that labor costs would start to drive up prices, making them last longer.
The report released on Friday is just one number and the wage data bounce, but it may ease pressure on the margins. Average hourly wages rose 5.1 percent in the year to February, well short of the 5.8 percent gain economists had expected. On a monthly basis, the salary is not collected at all.
The annual gains remain a solid pace of wage increases for American workers — hourly earnings rose 2 to 3 percent in the years leading up to the pandemic — but if wage gains continue to moderate, they could strike central banks as more sustainable.
This is especially true because the slowdown came with an increase in the percentage of people working or looking for work, and with more hours worked per week, indicating that employers are able to find a more willing supply of labor. With more workers available, the economy may be able to produce more and grow more quickly without overheating.
While workers clearly favor a faster pace of wage gains, the strong increases haven’t been enough to keep pace with inflation in recent months. If the Fed and market forces can cut price increases without causing a painful recession that puts people out of work, that could ensure that steady wage gains continue without being completely eaten up by higher prices — a good outcome economists sometimes refer to as an “easy landing.”
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