The latest data from the US Bureau of Labor Statistics (BLS) shows that non-farm payrolls in the US increased by 216,000 in December, exceeding expectations of 170,000. The average hourly wage increased by 4.1% annually, indicating a stronger labor market than expected and lowering market confidence in the Federal Reserve’s interest rate cut in March.
Market confidence in the interest rate cut in March has decreased.
White House economic advisor: Wage growth will exceed inflation by 2023.
Federal Reserve officials: The central bank should consider interest rate cuts.
The BLS released the employment report for December 2023, which is a key data point that the Federal Reserve will consider when adjusting monetary policy.
The report shows that non-farm payrolls in the US increased by 216,000 in December, exceeding market expectations of 170,000, and significantly higher than the downwardly revised 173,000 in November. The unemployment rate remained at 3.7%, slightly lower than the expected 3.8%, and the labor force participation rate declined to 62.5%, a 0.3 percentage point decrease and the lowest level since February, with a quarterly decrease of 676,000.
In terms of wages, average hourly wages increased by 0.4% monthly and 4.1% annually in December, higher than expected 0.3% and 3.9%, far exceeding the pre-pandemic average level and the 3-3.5% range that most policymakers believe is consistent with the Federal Reserve’s 2% inflation target.
The employment data reflects a stronger labor market in the United States than expected, which is not conducive to the Federal Reserve’s efforts to combat inflation, and has raised doubts in the financial market about the expectation of an interest rate cut in March.
The Fed Watch data from the Chicago Mercantile Exchange (CME) shows that the probability of the Federal Reserve cutting the current interest rate range of 5.25%-5.50% by one basis point at the FOMC meeting in March has slightly decreased to 62.3%, while the probability of pausing the rate hike has increased to 33.8%.
Andrew Patterson, Senior International Economist at Vanguard, stated on CNBC: “Today’s report shows that the path to the Federal Reserve’s 2% inflation target will be bumpy. We believe that the decision on when to cut interest rates for the first time still needs to be made in the second half of this year.”
Scott Anderson, Chief US Economist at BMO Capital Markets, quoted by Reuters, said: “The market is closely watching whether it is possible to start an interest rate cut in March. The minutes of the Federal Reserve’s FOMC meeting last month showed that most Federal Reserve officials believe that this round of interest rates may have reached a ‘peak’, but still believe that interest rates need to be kept high for a period of time until the inflation rate significantly and sustainably declines, achieving the Federal Reserve’s 2% target. Some officials support starting three interest rate cuts within 2024, but they did not disclose the specific timing of the interest rate cut.”
Jared Bernstein, Chief Economic Advisor to the White House and prominent economist, stated in an interview: “The market is closely watching whether it is possible to start an interest rate cut in March. The minutes of the Federal Reserve’s FOMC meeting last month showed that most Federal Reserve officials believe that this round of interest rates may have reached a ‘peak’, but still believe that interest rates need to be kept high for a period of time until the inflation rate significantly and sustainably declines, achieving the Federal Reserve’s 2% target. Some officials support starting three interest rate cuts within 2024, but they did not disclose the specific timing of the interest rate cut.”
Thomas Barkin, President of the Federal Reserve Bank of Richmond, stated in an interview with Bloomberg today that he supports an interest rate cut. Regarding the latest employment data, Barkin stated that the labor market seems to be “normalizing” rather than weakening, showing a stable and resilient trend. He expects that if the economy gradually declines, “the degree of weakness in the labor market will not be so obvious.” When asked about the possibility of an interest rate cut in March, Barkin stated, “I try not to make pre-judgments about the meeting.”
Source: Federal Reserve Bank of Richmond