Jobs Report Likely Keeps Fed on Track for Rate Rise in March

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The sharp decline in unemployment is another proof of the tightening of the labor market

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Evidence of tight labor markets and high inflation has given the Fed new urgency to begin draining the reservoir of stimulus it pumped into the economy after the pandemic nearly two years ago.

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At their meeting last month, Fed officials approved a plan to more quickly scale back, or taper, its bond-buying program to end it by March instead of June. They want to stop providing incentives with those purchases before raising short-term rates.

Minutes of that meeting, released on Wednesday, showed that most officials thought the economy would soon reach conditions consistent with maximum employment, and some already believed the target had been reached last month. Friday’s report is unlikely to change that count. Officials have said that they will increase the rates once the condition is met.

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Minutes twice referred to labor markets as “too tight”, suggesting a more convincing belief that the economy will need higher interest rates to slow growth and prevent overheating.

“We are making rapid progress toward maximizing employment,” Fed Chairman Jerome Powell said in a December 15 news conference.

Even though overall job growth was slower than economists forecast in December, strong wage growth means more to the Fed. Average hourly earnings rose 0.6% last month, leading to an annual wage increase of 4.7%.

Thomas Simmons, an economist, said, “The modest wage increase and substantial wage growth are consistent with the statement that job openings are difficult to fill, and the wage pressures we’ve seen in recent months are structural and any sooner may not.” Time is unlikely to be reversed.” At investment bank Jefferies. “It also alludes to continued inflationary pressures.”

Fed officials’ decision to get their foot off gas more quickly reflects a shifting calculus about the ability of strong demand to push prices up — such as wages and rents — into supply-chain constraints and shortages of cars. Despite the scarcity of items.

Strong demand for goods, disrupted supply chains and various shortages pushed 12-month inflation to its highest level in decades. Core consumer prices, which exclude volatile food and energy categories, were up 4.7% in November from a year earlier, according to the Fed’s preferred gauge. That’s well above both the Fed’s 2% target and officials’ willingness to drive inflation slightly above that target.

“There is now a real risk, I believe, that inflation may be more stable and … the risk of higher inflation is increased,” Mr. Powell said last month.

Write Nick Timiros and [email protected]

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