The U.S. economy’s addition of 263,000 jobs in September shows the labor market is strong enough to withstand another three-quarter-point interest rate increase when the U.S. Federal Reserve meets in early November, The Wall Street Journal said.
Job gains of around 50,000 a month would be enough to keep the employment rate steady and signal the possibility that inflation may begin to ease, according to the WSJ.
“Anyone looking for a reprieve that might give the Fed a green light to telegraph a pivot [to slower or lower rate increases] didn’t get it from this report,” Liz Ann Sonders, Charles Schwab’s chief investment strategist, told CNBC.
“Maybe [the Fed] can step back from” another two three-quarter-point rate increases and just add one, she said.
At the September meeting of the Fed’s Open Market Committee, which sets interest rates, officials indicated they plan to keep raising the key fed funds rate until it reaches 4.6 percent next year.
Last week, Fed officials confirmed that another spike in rates is ahead.
The U.S. Federal Reserve has “more work to do” to tame inflation and is “quite a ways away” from pausing its campaign of interest rate increases, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said during a 6 October public forum.
“With inflation running well above our 2-percent goal, restoring price stability likely will require ongoing rate hikes and then keeping policy restrictive for some time until we are confident that inflation is firmly on the path toward our goal,” Lisa Cook said in a 6 October speech at the Peterson Institute for International Economics, her first public comments as the Fed’s newest governor.
“Commodity prices move up and down, but underlying inflation—like wages and services—tend to be stickier,” Kashkari noted. “We’re not seeing any evidence yet that those things are moving in the right direction.
“Until I see some evidence that underlying inflation has solidly peaked and is headed back down, I’m not ready to declare a pause,” he added.
Kashkari has not yet “seen anything that changes” the need to lift the Fed’s key rate to 3.9 percent by 2023 and to at least 4.4 percent by 2024, he said. The rate now ranges between 2.25 and 2.5 percent.
Fed officials have vowed to hold firm to their plan to keep rates rising, even though higher interest rates risk the financial stability of emerging nations.
“I fully expect that there are going to be some losses and there are going to be some failures around the global economy as we transition to a higher-interest rate environment, and that’s the nature of capitalism,” Kashkari said.
“To me, the bar to actually shifting our stance on policy is very high,” he added. “It should not be up to the Federal Reserve or the American taxpayer to bail people out.”
Fed vice-chair Lael Brainard stated similar views in a late September speech, saying that the Fed is aware of the dangers higher rates pose to developing nations but will continue hiking rates just the same.
Cook’s background as an economics professor specializing in the impact of economic inequalities on growth had led some observers to hope she would advocate a softer touch with rate increases.
They were disappointed.
Cook worked in Russia after the Soviet Union collapsed and learned first-hand the damage that high inflation does to households, she said. Her work in Africa taught her the importance of relying only on data and not forecasts, she added.
“With risks to inflation forecasts skewed to the upside, I believe policy judgments must be based on whether and when we see inflation actually falling in the data,” she said.
Cook said she fully supported the Fed’s successive rate hikes of 75 basis points in recent meetings.
“Although lowering inflation will bring some pain, a failure to restore price stability would make it much harder and much more painful to restore it in the future,” Cook emphasized.
The Fed’s rate-setting Open Market Committee will meet again during the first two days of November.
TREND FORECAST: Fed officials say the central bank is committed to seeing inflation’s annual rate fall to its goal of 2 percent.
The Fed began raising rates a year later than it needed to. As a result, the rate hikes so far have begun to soften the market for housing but have not yet begun to weaken consumer prices across the broader economy.
To make a frontal assault on inflation, the central bank would have to quickly jack its benchmark rate to at least 7.5 percent. It will not do so for fear of tanking the economy.
And as we forecast, to help the political party in power to do well in the midterm elections just a month away, with pressure from the White House, the Feds may well raise interest rates only .25 basis points following their 2 November meeting. Such a small interest rate hike will be a big boost for equities which will in turn make the public believe the economy is on an upswing and “Happy Days are Here Again” thanks to the party in power… which will get their votes.
Long term, the Fed must continue to raise its rate steadily and incrementally for inflation to wear away so consumer buying power increases.