A strong jobs report will possibly encourage the Federal Reserve to continue raising interest rates to slow the economy and curb inflation.
- A continuing strong job market could convince the Fed to push interest rates above 5% and keep them high.
- On Wednesday, Fed chair Jerome Powell indicated that the public should expect more rate increases in the future.
- Experts expect at least two 25-basis-point increases with the possibility of a 50-basis-point increase, Bloomberg reports.
- “The Federal Open Market Committee raised its benchmark rate by a quarter percentage point to a range of 4.5% to 4.75% this week. The smaller move followed a half-point increase in December and four jumbo-sized 75-basis-point hikes prior to that,” Bloomberg’s Steve Matthews reports.
Why it’s news
While Powell was encouraged by a decrease in inflation, prices in the services sector have remained high, a problem Powell blames on the tight labor market.
In December, policymakers predicted that rates would rise above 5% this year and expected at least two quarter-point hikes in the first few months of the year. Now investors are predicting rates will peak at just under 5% by the end of the year.
Economists at Morgan Stanley had previously suggested that the Fed would pause rate hikes. Now they have revised their predictions, expecting another quarter-point increase. In a client note, the economists said there is “more upside risk if labor market data continue to move from strength to strength.”
One of the Fed’s goals has been to ease wage gains to a point that matches the 2% inflation target. Average hourly earnings were up 0.3% from last month and 4.4% from a year ago, Bloomberg reports. Over the last three months, wage gains have remained strong.
“We expect the Fed won’t take any signal from this wage data, and will await the more reliable employment cost index, due April 28, in determining its next steps,” said Bloomberg economist Anna Wong, chief U.S. economist at Bloomberg Economics.