Important points
Inflation has been falling in recent months, but at the same time the labor market appears to be cracking under pressure. Federal Reserve officials evaluating data when considering rate cuts have shifted their focus to a higher priority of keeping rates as low as possible. He said there was. That’s why a lot of attention is being paid to all kinds of employment indicators, especially the August jobs report, which will be released on Friday.
While inflation reports have been grabbing all the headlines for nearly three years, data on the labor market is gaining traction in the eyes of financial markets and the officials who decide interest rates.
In a blog post Wednesday, Atlanta Fed President Rafael Bostic joined the list of Federal Reserve policymakers who said they were keeping an eye on determining when and how to cut interest rates. The Fed has a “dual mission” in how it manages the U.S. economy: to control inflation and keep as many people employed as possible.
Inflation has been falling in recent months and remains far short of the Fed’s annual target of 2%. At the same time, cracks are beginning to appear in the once-booming labor market.
“Since inflation spiked in 2021, I have primarily focused on the price stability aspect of the mandate, as it was clearly further from that goal than the maximum employment goal,” Bostic wrote. Ta. “But in recent months, as the labor market has cooled and the balance of risk has shifted, I am now paying essentially equal attention to maximum employment targets.”
Federal Reserve Chairman Jerome Powell said much the same thing in a major policy speech last month.
A major turning point for policymakers and investors
This change is noteworthy. For the past three years, Fed officials have focused on inflation when determining interest rates. Stock prices often fluctuated on news of inflation, sometimes rising when it appeared that falling inflation would allow the Fed to cut rates, and sometimes falling when a resurgence in inflation pushed the date for a rate cut further away. .
As inflation reporting becomes more commonplace, attention to the labor market is also increasing. This has been particularly the case since July’s jobs report showed an alarming rise in the unemployment rate and rattled financial markets on fears the economy was heading into recession.
Watch for Friday’s employment report
Investors will look for new insights into the health of the economy and clues about how quickly and by how much the Fed will cut the key federal funds rate in the coming months. The upcoming August employment report will be closely scrutinized.
With the economy struggling under the weight of high borrowing costs, Fed officials and economists are also monitoring the labor market for signs of layoffs or a recession. As a result of the Fed’s rate hike campaign, the federal funds rate is currently at its highest level since 2001. The hike is aimed at combating a post-pandemic surge in inflation.
“Investors and policy makers tend to get preoccupied and fixated on things, and right now that fixation is certainly on the labor market,” said Jeffrey Roach, chief economist at LPL Financial.
