According to the latest data from the US Bureau of Labor Statistics, the non-farm payroll employment in the US increased by 216,000 people in December, exceeding the market’s expectation of 170,000 people. The average hourly wage increased by 4.1% annually, indicating that the labor market is stronger than expected, and reducing market confidence in the Federal Reserve’s interest rate cut in March.
Market Confidence in March Interest Rate Cut Decreased
White House Economic Advisor: Wage Growth Exceeds Inflation in 2023
Federal Reserve Officials: The Central Bank Should Consider Cutting Interest Rates
The US Bureau of Labor Statistics released the December employment report on the 5th, which is a key data that the Federal Reserve will refer to when adjusting monetary policy.
The report shows that non-farm payroll employment in the US increased by 216,000 people in December, exceeding the market’s expectation of 170,000 people, and significantly higher than the downward revision of 173,000 people in November. The unemployment rate remained at 3.7%, slightly lower than the expected 3.8%. The labor force participation rate fell to 62.5%, a decrease of 0.3 percentage points, the lowest level since February, with a quarterly decrease of 676,000 people.
In terms of wages, the average hourly wage increased by 0.4% monthly and 4.1% annually in December, both higher than the expected 0.3% and 3.9%, far exceeding the pre-pandemic average level and the range of 3-3.5% that most policymakers believe is consistent with the Federal Reserve’s 2% inflation target.
The employment data reflects that the US labor market is stronger than expected, which is not conducive to the Federal Reserve’s efforts to curb inflation. This has also led to doubts in the financial market about the expectation of the Federal Reserve launching an interest rate cut in March.
The CME Fed Watch data shows that the probability of the Federal Reserve lowering the current interest rate range of 5.25%-5.50% by 1 basis point at the FOMC meeting in March has slightly decreased to 62.3%, while the probability of suspending rate hikes has increased to 33.8%.
Vanguard Senior International Economist Andrew Patterson told CNBC, “Today’s report shows that the Federal Reserve’s path to achieving a 2% inflation rate will face obstacles. We believe that the decision on when to make the first rate cut still needs to be made in the second half of this year.”
Reuters quoted Scott Anderson, Chief US Economist at BMO Capital Markets in San Francisco, as saying, “The market is closely watching whether there is a chance of an interest rate cut in March. The minutes of the Federal Reserve’s FOMC meeting last month showed that most Federal Reserve officials believe that this round of interest rate hikes may have reached a ‘peak’, but they still believe that interest rates will need to be kept high for a period of time until the inflation rate visibly declines and achieves the Federal Reserve’s 2% target. Some officials support starting three interest rate cuts within 2024, but have not disclosed the specific timing of the rate cut.”
Thomas Barkin, President of the Federal Reserve Bank of Richmond, who has voting rights in the FOMC, expressed support for an interest rate cut in an interview with Bloomberg today.
Regarding the latest employment data, Barkin said that the labor market seems to be “normalizing” rather than weakening, showing a stable and not significantly weak trend. He expects that if the economy gradually declines, “the weakness of the labor market will not be so obvious.” When asked about the possibility of an interest rate cut in March, Barkin said, “I try not to make pre-judgments about the meeting.”
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