Rex Nutting: Wages are still rising faster than the Fed will tolerate. That means more rate hikes and layoffs are coming.

by | Aug 6, 2022 | Stock Market

The Federal Reserve doesn’t love the employment report released Friday, which showed that 528,000 more jobs were created in July while the unemployment rate fell to 3.5%, matching the lowest rate in more than 50 years. They ought to love the strong market. After all, one of the Fed’s official duties is to foster “maximum employment” and this report shows we are close to that goal. Yay!!

Breaking news: Jobs shocker: U.S. unemployment falls to prepandemic levels as economy adds 528,000 jobs in JulyToo much of a good thing Here’s the catch: More jobs are a good thing, but too much of a good thing can cause problems. Problems such as higher inflation rates. Boo!! The Fed’s other mandate is price stability, and from that point of view, the July jobs report was troubling because it showed that the labor market might getting so good that it causes inflation.

“The Fed is taking no chances with a wage-price spiral developing. It’s going to break the cycle by making sure wages don’t get too high. And if that means slowing the economy so much that companies will be laying off workers instead of throwing money at them to stay, so be it. ”

That’s why the Fed didn’t love this strong jobs report and that’s why financial markets expect that the Fed will have to get more aggressive about raising its benchmark interest rate
to bring down inflation. The stronger the jobs market is, the tougher the Fed has to fight.


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