The US Labor Market Shows Moderate Growth in September, Impacting Interest Rates
The latest employment report in the United States has revealed that the labor market continued to moderate in September, marking an important milestone for Federal Reserve officials as they consider whether to increase interest rates for the remainder of the year.
According to economists surveyed by Reuters, the economy is expected to have added around 170,000 jobs in September, slightly surpassing the average of 150,000 jobs added in the previous three months. Additionally, the unemployment rate is anticipated to decrease slightly from 3.8% to 3.7%.
This data, combined with an unexpected surge in job openings in August, creates a scenario where the immediate policy debate regarding interest rates remains unresolved. Despite economists predicting a modest slowdown later this year, the US economy continues to outperform expectations with above-trend growth.
During its September meeting, the Federal Reserve decided to maintain the target federal funds rate at the current range of 5.25% to 5.5%. The next meeting is scheduled to take place from October 31 to November 1.
Some economists, like Nancy Vanden Houten, the lead US economist at Oxford Economics, believe that the Fed would prefer to see more evidence of cooling labor market conditions before making any further decisions regarding interest rates. Vanden Houten expects the economy to have added 180,000 jobs in September, a slight drop from the 187,000 added in August but still close to the monthly average seen over the past decade.
However, Vanden Houten predicts that wage gains will likely be stronger than the previous month. She believes that the recent data points to a labor market that remains relatively strong, increasing the possibility of an additional interest rate hike, even though the general expectation is that the Fed will not raise rates any further.
The steady job growth and consistently low unemployment rate throughout the year have surprised many economists and policymakers who expected the rate hikes of the past year and a half to have a more significant impact on demand, economic growth, and hiring.
Earlier this summer, there were signs of labor market cooling, with the average monthly job gains decreasing from over 330,000 in January to 150,000 in the three months from June to August. Wage gains have also slowed down.
Fed officials, however, have found reassurance in the details, noting that the labor market is gradually returning to normalcy. Quit rates, for example, have returned to levels similar to those seen prior to the pandemic, and the number of jobs for each unemployed person has significantly declined.
Additionally, data since the Fed’s September meeting has shown that underlying inflation is slowing down even faster than expected. Despite this, policymakers still anticipate the need for another interest rate hike by the end of the year.
As the US labor market continues to evolve and surprise experts, Federal Reserve officials remain cautious in their decision-making process concerning interest rates. The September employment report provides valuable insights and serves as a crucial waypoint for determining the best course of action moving forward.
