Most economists are penciling in at least a mild recession in the first half of next year.
In October, the economy added 261,000 jobs and the unemployment rate drifted up to 3.7%. Although the employment landscape is solid, as we enter the fourth quarter of the year job growth is decelerating.
Meanwhile, the number of Americans participating in the labor force is still low, at 62.2%, down from the 63.4% before COVID-19. Bill McBride of Calculated Risk notes that “the overall participation rate is impacted by both cyclical and demographic reasons,” which is why focusing on 25 to 54 year old workers makes sense.
The most important aspect of the jobs report for the Federal Reserve is wages, which were up 4.7% from a year ago. October was the first month where annual wage growth was below 5% since December 2021. Yes, I know workers want higher wages, but the central bank wants to see wages come down in order to help alleviate the four-decade in inflation.
This new addition to the official statement suggests that the central bank could pull back on the size of future rate hikes, though Chair Jerome Powell has noted repeatedly that the Fed still “has a ways to go” before reaching the “terminal rate,” which is the rate at the end of the hiking cycle.That’s the question plaguing investors.
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