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US Job Market Strength Bolsters Federal Reserve’s Reserved Approach to Rate Cuts

US Job Market Strength Bolsters Federal Reserve's
People who lost their jobs wait in line to file for unemployment following an outbreak of the corona... People who lost their jobs wait in line to file for unemployment following an outbreak of the coronavirus disease (COVID-19), at an Arkansas Workforce Center in Fayetteville, Arkansas, U.S. April 6, 2020. Nick Oxford, Reuters Reuters Images
US Job Market Strength Bolsters Federal Reserve's
People who lost their jobs wait in line to file for unemployment following an outbreak of the corona... People who lost their jobs wait in line to file for unemployment following an outbreak of the coronavirus disease (COVID-19), at an Arkansas Workforce Center in Fayetteville, Arkansas, U.S. April 6, 2020. Nick Oxford, Reuters Reuters Images

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US Job Market Strength Bolsters Federal Reserve’s Reserved Approach to Rate Cuts

Federal Reserve policymakers are facing a nuanced economic landscape as they assess whether to implement interest-rate cuts, with a recent government report providing both positive and cautionary signals. The report revealed that U.S. employers added 275,000 jobs in February, surpassing economists’ expectations. However, revisions to prior months’ estimates indicated smaller job gains than initially thought, and other details suggested a gradual rebalancing in the labor market.

While the unemployment rate rose to 3.9%, its highest in two years, it remains below levels deemed unsustainable by the Fed in the long run. Wage growth, a key factor in the Fed’s inflation considerations, edged down to 4.3% in February from 4.4% in January. Although it hasn’t reached the Fed’s 2% inflation goal, the decline is seen as a positive trend.

Fed Chair Jerome Powell, in his recent testimony on Capitol Hill, expressed confidence in the economy’s health and suggested that policymakers are nearing a point where they have enough confidence in the direction of inflation to consider reducing interest rates.

The latest labor market report, indicating ongoing strength with gradual easing, is expected to provide reassurance to the Fed. Analysts predict that the Fed may find it appropriate to cut rates by June, considering the broader economic conditions. Futures contracts currently suggest an 80% chance of interest-rate cuts by mid-June, with expectations of a full percentage point of rate cuts by the end of the year.

The Federal Reserve’s next meeting is scheduled for March 19–20, and while no changes to the policy rate are expected, policymakers will closely monitor inflation trends. With inflation still above the Fed’s 2% target, there is a desire for further assurance of a durable downward trajectory before committing to rate cuts. Some readings on inflation this year have been stronger than expected, leading some policymakers to consider delaying rate cuts until they have more clarity.

Fed Governor Christopher Waller emphasized the need for a couple more months of data to verify progress on inflation. The central bank is carefully assessing the labor market for any signs of strain under the pressure of historically high policy rates. While the pace of hiring appears to be cooling, analysts suggest that there is currently no evidence indicating that the labor market is on the verge of a significant downturn.


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