Why is the increase in US jobs worrying the Fed? 1:00
Minneapolis (WABNEWS Business) — The US economy added 315,000 jobs in August, beating economists’ expectations but well below the July report, when employment rose by a revised 526,000 jobs.
The country’s unemployment rate rose to 3.7% from 3.5%, and the labor force participation rate rose 0.3 percentage point to 62.4%.
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The August jobs report is one of the key economic data the Federal Reserve will examine when it meets later this month to decide how much to raise its benchmark interest rate to rein in stubbornly high inflation. The Federal Reserve has been fighting the highest inflation in the last 40 years by applying very high rate hikes.
Although the economy is slowing down and some sectors, such as housing, are showing weakness amid a series of sharp interest rate hikes, the labor market has remained strong, a little too strong for people’s liking. Fed. Fed Chairman Jerome Powell said last week that the labor market is “clearly out of balance, with demand for workers substantially outstripping the supply of available employees.”
Earlier this week, the ratio of available jobs to job seekers rose again to just under 2:1 as the number of job openings reached 11.2 million in July, an increase of 700,000 from June, according to the Bureau of Labor Statistics.
The monthly average increase in jobs is considerable, compared to the time before the pandemic, when the monthly average hovered around 200,000 positions, according to data from the Bureau of Labor Statistics. But even the slower pace of the August hike would be seen as acceptable to the Fed, said Brian Bethune, an economics professor at Boston College.
“I don’t think the Fed wants to see things suddenly slow down, or move too fast for the economy to adjust,” he said. “What the Fed wants is the Goldilocks economy. They want it to move at a steady pace, but not too fast; not too hot, not too cold.”
The strength of the labor market and rising employment should not be viewed as a net negative, Bethune said, noting that adding workers helps ease supply constraints on goods and services.
“If the Fed goes and runs the stop sign, and as a result we get a reduction in employment, then we’re going to get a reduction in supply, it’s really not the right way to go at all,” he said.
This is the second jobs report to be released since late July, when the Fed’s interest rate committee last met. Powell said last week that the central bank’s decision in September will depend on the “totality of the data and the evolution of the perspectives”.
Among the most important reports to be released in the coming weeks will be the Consumer Price Index and the Producer Price Index, which could help show the direction of inflation.
