Just days after Federal Reserve Chairman Jerome Powell cited a robust but out-of-balance U.S. jobs market as one of the primary drivers of the monetary body’s ongoing, aggressive pace of interest rate hikes, a new federal report released Friday finds employment growth is still outpacing expectations.
But, the latest jobs data shows some signs of slowing and the national unemployment rate also inched up in October. Both are telltales that the Fed’s policy direction could finally be impacting broader economic indicators and creating conditions to stifle U.S. inflation rates that have been running at or near a record clip this year.
What’s happening with the U.S. jobs market?
The U.S. Labor Department report released Friday found nonfarm payroll employment increased by 261,000 positions in October, and the unemployment rate rose to 3.7%. Notable job gains, according to the report, occurred in health care, professional and technical services and manufacturing.
Average U.S. wages also rose in October, up 0.4% from September and 4.7% over the same time last year.
But while October’s job gains outpaced the 260,000 many economists were expecting, the volume is well down from the 315,000 jobs added in September.
“Job gains were fairly widespread, and overall wage gains are still too high,” Marvin Loh, senior global macro strategist at State Street told CNBC. “So, steady as she goes from a Fed perspective, but incrementally, there’s reason to have a little hope that we’re starting to see some of the froth come out of the (jobs) market.”
How will the Fed react to the new jobs data?
On Wednesday, the Federal Reserve announced another jumbo .75% increase to its benchmark lending rate, marking the fourth straight increase of that size and sixth overall interest rate boost this year.
The aggressive strategy is aiming to tamp down inflation that has been running at or near 40-year highs for most of the past year. The rate hikes aim to raise the cost of debt for businesses and consumers which should, theoretically, reduce the amount of spending and overall economic activity, a shift in dynamics that typically brings inflation rates down. But so far, consumer spending has remained robust and the U.S. labor market has continued to run red hot, with unfilled jobs far outnumbering the number of available workers to fill them.
Friday’s jobs numbers provide some evidence to the Fed that its hoped-for gradual slowdown of the economy through interest rate hikes could finally be working. And while it may be enough to push Powell and the Fed’s governing board members to consider making a smaller upward adjustment in December, it’s likely not enough to bring the strategy to a halt.
“This report was definitely strong enough to keep the Fed on track raising rates,” Jonathan Pingle, an economist at UBS, told The Associated Press.