Fed takes time thanks to strong increase in jobs

Now there is no doubt: the US economy continues to be in great shape. Although interest rates are at levels not seen in decades, following the significant monetary tightening adopted by the Federal Reserve to fight inflation, US companies continue to create jobs and the unemployment rate shows no signs of increasing, signaling an exceptional resilience of the stars and stripes economy. The latest indication came on Friday from non-agricultural jobs reportthe so-called non-farm payrolls.

Payroll data

U.S. job growth in March rose to the highest in nearly a year and the unemployment rate fell, pointing to a strong job market supporting the economy. According to data provided by the Bureau of Labor Statistics, total nonfarm employment is increased by 303,000 units in Marchhigher than the average monthly increase of 231,000 units in the previous 12 months.

In March, job gains occurred, most notably, in healthcare (72,000 jobs added), government (71,000 jobs added), and construction (39,000 jobs added). Employment in the leisure and hospitality sector also increased (+49,000), returning to the pre-pandemic level of February 2020.

Both the labor force participation rate, at 62.7%, and the employment-population ratio, at 60.3%, remained virtually unchanged in March. The unemployment rate it fell to 3.8% from 3.9%. Average hourly wages for all private nonfarm employees increased 12 cents, or 0.3%, to $34.69. Over the last 12 months, average hourly earnings have increased by 4.1%.

The link with rates

Strong employment data suggests that the Fed can remain patient on inflation, and therefore on rate cuts. “Another strong expansion in employment suggests there is no slowdown in labor demand growth – commented Brian Coulton, chief economist at Fitch Ratings – There is not much evidence of an improvement in labor market imbalances – the rate Unemployment fell and three-month annualized wage growth rose to 4.4%, the highest rate since last September. There is nothing in this document that would unlock “greater confidence” in disinflation by the Fed.”

Investors were in fact carefully monitoring the indications coming from economic data in a context in which surveys, unable to sustain expectations of imminent normalization of monetary policy, are taken as a pretext to close positions on the market.

Markets have been keeping an eye on the employment data, especially as the Federal Reserve weighs its next moves on monetary policy, after there had been stock market crashes in previous days due to fears that a strong labor market and a resilient economy can keep the central bank on hold longer than expected.

Bankers' statements

If before the report on the labor market the markets were pricing in a first rate cut in June, now that probability has dropped sharply and the question arises whether the first easing of monetary policy could take place in September. It should also be considered that several Fed officials, including Chairman Jerome Powell, have indicated this week that they prefer to take a cautious, data-dependent approach.

“In March I noted two rate cuts this year if inflation continues to fall towards our 2% target,” but “if we continue to see inflation move sideways, that would make me question whether or not we need to make such rate cuts,” the president of the Federal Reserve Bank of Minneapolis said Thursday, Neel Kashkari.

On the same day, the president of the Federal Reserve Bank of Cleveland, Loretta Mestersaid he wants to “see the data for a couple more months” to understand whether the decline in U.S. inflation will resume after a disappointing couple of months. Thomas Barkinpresident of the Federal Reserve Bank of Richmond, said he thought it was “smart for the Fed to take its time,” also because “no one wants inflation to re-emerge.”