The U.S. released a strong non-farm payrolls report, showing that inflation concerns remain lingering, thwarting the Federal Reserve’s plans to slow rate hikes as soon as this month. The chart provides an indication of the likely direction of end-point interest rates, as well as policymakers’ views on the labor market.
The U.S. Department of Commerce announced on Friday (2nd) that non-agricultural employment increased by 263,000 in November, an increase of 200,000 that exceeded market expectations and a revised 284,000 in October, and hourly wages increased by 5.1% annually. All signs point to a tight and fast-growing job market even as the Fed tries to cool the economy by raising interest rates.
Given the slow progress in cooling U.S. inflation, 19 Fed officials are expected to use this month’s dot plot of interest rate forecasts to convey forecasts that interest rates will continue to rise and remain at high levels throughout 2023, in line with the market’s current forecast for late next year. Opinions on rate cuts have previously been divided.
“The Fed has been telling us that if we want to see cooling wage growth and higher unemployment, we have to have a relatively long period of restrictive interest rates, and today’s report couldn’t be clearer,” said Thomas Simons, an economist at Jefferies. The report won’t change the odds that the Fed will move to a 2-yard rate hike in December, but it also makes him more confident that next year’s terminal rate will exceed 5%.
If the terminal interest rate of this wave of interest rate hike cycle really rises 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 percent at the time.
The Federal Open Market Committee (FOMC) will publish its latest Summary of Economic Projections (SEP) on December 13-14, including a dot plot of interest rate forecasts, as well as forecasts for gross domestic product (GDP), inflation and unemployment, That will show how policymakers will pursue a “raise rates and keep them high” strategy and, more importantly, whether the labor market can withstand the test of higher rates.
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A new summary of economic forecasts will show how much the Fed forecasts will take a toll as monetary tightening kicks in, including the level of rising unemployment and the extent to which economic growth will slow.
In his speech earlier this week, Powell endorsed the slowdown in interest rate hikes, which led to a sharp rise in U.S. stocks, but he did not forget to emphasize that interest rates will “rise slowly but higher” and will remain at the peak for a period of time, conveying firm Stance against inflation. The speech was his last public address before the December meeting.
Inside the Fed, James Bullard, president of the Federal Reserve Bank of St. Louis, who is hawkish, and Mary Daly, president of the Federal Reserve Bank of San Francisco, who are dovish, have recently mentioned the possibility that interest rates will 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 percent in October, down from 6.3 percent in September and the lowest this year and still three times the Fed’s 2 percent target.
Powell also acknowledged this week that forecasting the economic outlook is difficult as the economy remains reeling from the aftermath of the outbreak.
The Fed’s most recent economic forecast, released in September, was still relatively benign. At that time, it believed that the economy would continue to grow, there would be steady progress in fighting inflation, and that the unemployment rate would only rise to 4.4% next year (less than 3.7% from the current 1 percent). The cost to the real economy is small, with the federal funds rate at 4.6% by the end of next year.
But Powell has indicated that rates need to be “a little bit higher” and the November jobs data could indeed push rates a bit higher.
Jason Furman, the former chairman of the White House Council of Economic Advisers (CEA), tweeted that November’s average earnings and revisions from prior months were “roughly in line with 5% inflation.” , making his hopes of an economic turnaround almost dashed.
The decision-making meeting will also draw an end to the financial market turmoil caused by the Fed’s aggressive interest rate hikes. The Fed suppressed inflation with the most aggressive interest rate hikes since 1980, shocking the entire financial market. The U.S. stock market value has plummeted this year. At one point, it lost nearly $12 trillion in blood. Mortgage interest rates soared to 7%, which made lenders who are accustomed to low interest rates very excited. It’s too much to shout.
