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The recent announcement of a labor market rebound has significant implications for the Federal Reserve’s monetary policy. With 227,000 new jobs created in November, the Fed is likely to proceed with a quarter percentage point interest rate cut at its upcoming meeting, unless inflation surprises to the upside.
Key Takeaways
- 227,000 new jobs were created in November, surpassing expectations.
- The unemployment rate rose to 4.2% from 4.1% in October.
- Traders now see a 91% chance of a rate cut at the Fed’s December meeting.
- Fed officials indicate a cautious approach to future rate cuts in 2025.
Labor Market Rebound
The Bureau of Labor Statistics reported that the labor market added 227,000 jobs in November, exceeding economists’ expectations of 220,000. This positive news comes after a revised report for October, which showed only 36,000 jobs were created, impacted by hurricanes and a strike at Boeing.
Despite the increase in job creation, the unemployment rate ticked up to 4.2%. This slight rise is not seen as a deterrent to the Fed’s plans, as the overall job growth aligns with their goals for easing monetary policy.
Fed’s Rate Cut Outlook
Economists and traders are now anticipating a 91% probability of a rate cut at the Federal Reserve’s final meeting of 2024, scheduled for December 17-18. Robert Sockin, Citigroup’s senior chief economist, emphasized that the recent job numbers do not alter the Fed’s narrative, suggesting that they are comfortable with continuing to ease policy.
Brian Jacobsen, chief economist at Annex Wealth Management, noted that while a rate cut in December is likely, the pace of future cuts in 2025 may be more measured. He indicated that the Fed might adopt a strategy of cutting rates every other meeting to proceed cautiously.
Inflation Concerns
Despite the positive job growth, inflation remains a concern. Recent data indicates that inflation has been stickier than anticipated, leading Fed watchers to believe that the central bank will be more conservative in its approach to rate cuts next year. Fed Chair Jerome Powell hinted at this cautious stance during a recent event, stating that the economy’s strength allows for a more careful approach.
Cleveland Fed President Beth Hammack also expressed her views on the monetary policy landscape, suggesting that the Fed is nearing a neutral interest rate level. She indicated that the market is pricing in one reduction in the fed funds target range by the end of January, with only a few cumulative reductions expected by the end of 2025.
Conclusion
The labor market’s rebound is a positive sign for the economy, but it does not significantly alter the Federal Reserve’s plans for interest rate cuts. As the Fed prepares for its December meeting, the focus will remain on balancing job growth with inflation concerns, ensuring that monetary policy supports sustainable economic growth without overheating the economy. The cautious approach indicated by Fed officials suggests that while immediate cuts may be on the horizon, the pace of future reductions will be carefully considered.
