Federal Reserve Chair Jerome Powell has signaled the possibility of two consecutive interest rate hikes in coming months, blaming stubborn inflation on the strong labor market. That makes the monthly jobs report coming out Friday a key data set while on this quest to vanquish unruly inflation.
When Fed policymakers set interest rates, they’re looking at a whole lot of economic data.
“Household survey data, you know, they still get financial market data, a lot of, you know, survey of professional forecasters,” explained Rice University economist Zach Bethune.
“They’re most focused right now on labor market data. You know, we still see the labor market running very hot,” Bethune said.
“Last month, 339,000 net new jobs was probably higher than they had hoped,” said Morning Consult economist John Leer. “We’d like to see that number trending lower.”
Lower by 100,000 to 150,000 new positions, said David Wessel with the Brookings Institution. He said the Fed also wants a slowing down of wage increases. “So they would like to see more people coming into the labor market, increased labor supply. They would like to see less demand for labor, that is employers creating fewer jobs,” he said.
Tatevik Sekhposyan with Texas A&M University said slightly higher unemployment would also signal a much-desired cooling, which she admits is an odd concept for her students.
“When a teacher, I mean, this is always a problem, right? I mean, you go on, say, I mean, you would prefer a bit higher unemployment. And the students look at you saying, you know, ‘What are you talking about?’” she said.
But she said the Fed’s goals are simple: price stability and full employment.
“We have inflation on the higher side, relative to the historical standards, you know, and above expectations, and we have unemployment on the lower side and again, below expectations, right? So it’s kind of trying to recalibrate this,” Sekhposyan said.
If the Fed pulls it off … ta-da!
“We might get the much hoped for soft landing where the economy slows, inflation comes down. But we don’t have a recession,” Wessel said.
Or Wessel said if we do have one, it would be mild.
