The US released a strong nonfarm payrolls report, showing that inflation fears remain lingering, thwarting the Federal Reserve’s plans to slow rate hikes as early as this month. The chart provides an indication of the likely direction of final interest rates, as well as the views of policy makers on the labor market.
The US Department of Commerce announced Friday (2) that nonfarm payrolls rose by 263,000 in November, a 200,000 increase that beat market expectations and a revision of 284,000 in October, and that Hourly wages increased by 5.1% annually. a tight and rapidly growing job market even as the Fed tries to cool the economy by raising interest rates.
Given slow progress in cooling US inflation, 19 Fed officials are expected to use this month’s interest rate forecast dot plot to broadcast forecasts that interest rates will continue to rise and remain elevated throughout 2023, in line with the current market forecast for the end of next year Opinions on rate cuts have previously been divided.
“The Fed has told us that if we are to see wage growth cool and unemployment rise, we need to have a relatively long period of tight interest rates, and today’s report couldn’t be clearer,” Thomas said. Jefferies economist Simons. The report won’t change the odds that the Fed will move to a 2-yard rate hike in December, but it also makes it more confident that next year’s terminal rate will exceed 5%.
If the final interest rate of this wave of interest rate hike cycles does indeed rise to 5%, it will return to the level from June 2006 to July 2007, which is the beginning of the 2007-2009 financial tsunami. The federal funds rate peaked at about 5.25% at the time.
On December 13 and 14, the Federal Open Market Committee (FOMC) will release its latest Summary of Economic Projections (SEP), which includes a dot plot of interest rate forecasts, as well as forecasts for gross domestic product (GDP), inflation and unemployment, This will show how policymakers will pursue a strategy of “raise rates and keep them high” and, more importantly, whether the labor market can stand the test of higher rates.
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A new economic forecast roundup will show how much the Fed’s forecasts will impact once monetary tightening takes effect, including how much unemployment will rise and the extent to which economic growth will slow.
In his speech earlier this week, Powell endorsed slowing interest rate hikes, which led to a sharp rise in US stocks, but he didn’t forget to stress that interest rates “will rise slowly but faster.” high” and will remain at their high for a period of time, conveying firm stance against inflation. The speech was his last public speech before the December meeting.
Inside the Fed, James Bullard, chairman of the Federal Reserve Bank of St. Louis, who is hawkish, and Mary Daly, chairman of the Federal Reserve Bank of San Francisco, who is dovish, recently hinted at the possibility that interest rates exceed 5% next year sex.
Powell said this week that he still sees only modest unemployment as a “reasonable” path to a soft landing for the economy.
But data on Thursday showed the Fed’s preferred measure of inflation was 6% in October, down from 6.3% in September and the lowest this year and still three times the 2 target. % of Fed.
Powell also acknowledged this week that forecasting the economic outlook is difficult as the economy continues to reel from the aftermath of the outbreak.
The Fed’s most recent economic forecast, released in September, was still relatively benign: At the time, it believed that the economy would continue to grow, that there would be steady progress in fighting inflation, and that the unemployment rate would rose to only 4.4%. next year (less than 3.7% from the current 1%). The cost to the real economy is low, with the federal funds rate at 4.6% by the end of next year.
But Powell indicated that rates need to be “a little higher” and November’s jobs data could actually push rates a little higher.
Jason Furman, the former chairman of the White House Council of Economic Advisors (CEA), tweeted that November’s average earnings and prior months’ revisions were “roughly in line with 5% inflation,” nearly making the companies disappointed. his hopes of an economic turnaround.
The decision meeting will also mark the end of the financial market turmoil caused by the Fed’s aggressive interest rate hikes. The Fed has suppressed inflation with the most aggressive interest rate hikes since 1980, shocking the entire financial market. The value of the US stock market has plummeted this year. At one point, he lost nearly $12 trillion in blood. Mortgage interest rates jumped to 7%, which made lenders accustomed to low interest rates very excited.
