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CNN
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The Federal Reserve is going to raise interest rates again on Wednesday. But will it be another half-point hike or just a quarter-point increase? And what about the rest of the year?
The Fed’s actions beyond this week’s meeting will depend primarily on whether inflation is truly slowing. Investors will get another clue when the January jobs report is released on Friday.
Economists predict that 185,000 jobs were added last month, a slowdown from the gain of 223,000 jobs in December and 263,000 in November. A further deceleration in the labor market would likely please the Fed, as it would show that last year’s rate hikes are successfully taking some air out of the economy.
The Fed knows it’s in a tough situation. Inflation pressures are partly fueled by wage gains for workers. In an environment where the unemployment rate is at a half-century low of 3.5%, employees have been able to command big increases in pay to keep up with rising prices of consumer goods and services.
Along those lines, average hourly earnings, a measure of wages that is also part of the monthly jobs report, are expected to increase 4.3% year-over year. That’s down from 4.6% in December and 5.1% in November.
As wage growth cools, so do price increases. The Fed’s favorite measure of inflation – the Personal Consumption Price Index or PCE – rose “just” 5% over the past 12 months through last December, compared to a 5.5% annual increase in November.
That is still uncomfortably high, but the trend is moving in the right direction.
The problem for the Fed, though, is that it may need to keep raising interest rates until there is further evidence that the labor market is cooling off enough to push the rate of inflation even lower.
Recession or soft landing?
Several other job market indicators continue to show that the US ec …