Strong wage and job growth continues to fuel large rate increases

Even as recession warnings reach a fever pitch, the surprisingly strong June employment report reinforced that the U.S. labor market remains historically strong. But that growth, while good news for the Biden administration, could also prompt the Federal Reserve to raise interest rates as it tries to cool the economy and slow inflation.

Today’s world of rapidly rising prices is a troubling one for economic policymakers, who worry that the job market will overheat. Increases persistent inflation. Instead of treating the roar for labor as unabated, they hope to create a gradual and controlled slowdown in hiring and wage growth, both of which have been unusually strong.

Friday’s report provided early signs that the desired cooling may be taking hold, with both job gains and wage growth moderating slightly. But hiring and earnings remained firm enough to reinforce the view among central bankers that the labor market, like much of the economy, is dysfunctional: Employers want more workers than they still have available.

The new data could prompt central bankers to raise another supersize rate at a meeting later this month Try to control Consumer and business spending and pushing the economy back into balance.

“We’re starting to see the first signs of a recession, and that’s what we need,” Atlanta Federal Reserve Bank President Raphael Bostick said in a CNBC interview after the report was released. However, he was “slightly” promising on the wage data, saying, “We are starting to move in the right direction, but there is a lot more to do, a lot more we need to see.”

Central bank officials began raising interest rates from near zero in March in an effort to make many types of debt more affordable. Last month, the central bank raised its policy rate by 0.75 percentage points, the largest ever A single increase since 1994.

Central bankers typically only adjust their policy in quarter-point increments, but they are increasing the pace as inflation proves troublingly quick and stubborn. Fed policymakers have said they will discuss a move between 0.5 and 0.75 percentage points at their meeting on July 26 and 27. In recent days, the authorities have been clamoring He said he favors a second 0.75 percentage point move given the pace of inflation and the strength of the job market.

As the federal government tries to slam the brakes on the economy, Wall Street economists have warned it could push it into a recession — and the Biden administration is blocking announcements that have already arrived. A Decline in overall growth dataA slowdown in the housing market and a slowdown in factory orders are fueling concerns that the U.S. is on the brink of a recession.

Employment data strongly contradicted that narrative, as a shrinking economy typically doesn’t add jobs, let alone at the current brisk pace.

Mr. Biden celebrated Friday’s report, saying “our critics said the economy was too weak” but “we’ve still added more jobs in the last three months than any administration in nearly 40 years.”

Voices from the private sector agreed that the employment report showed that the economy was not in decline.

“Wage growth is high and job loss rates are low,” Nick Bunker, director of economic research at the jobs website, wrote in a reaction note. “We will see another recession one day, but today is not that day.”

At a paradoxical moment in the economy – with prices soaring, economic growth shrinking and unemployment at a 50-year low – Mr. A challenge for Biden. Credit to jobs recovery strength.

As price growth accelerated Mr. Biden’s approval ratings have plummeted. Optimism has been especially pronounced in recent months amid rising gas prices, which averaged more than $5 a gallon earlier this summer.

On Friday, Mr. Biden has stressed that fighting inflation is his top economic priority, while praising recent job market improvement.

“I know times are tough,” said Mr. Biden spoke in public comments. “The prices are too high. Households are facing a cost-of-living crisis. But today’s economic news confirms that my economic plan is moving this country in the right direction,” he said.

But unfortunately for management and workers across America, tackling higher prices will come at some cost in the labor market.

As prices rise for consumers at the gas pump and in the grocery store, the central bank hopes to bring inflation under control quickly to set the economy on a path toward healthy and sustainable growth.

The central bank’s tool works to achieve a positive long-term effect by causing short-term economic pain. By spending money on borrowing, the central bank could slow home buying and business expansions, which would slow hiring and slow wage growth. As firms and households have fewer dollars to spend, the theory goes, demand will better align with supply and prices will stop rising.

Officials expect unemployment to eventually rise as rates rise and the economy weakens, though they believe it will rise slightly.

Fed policymakers still believe in engineering what they call a “soft landing,” in which hiring and wages slow gradually but without plunging the economy into a painful recession.

But it won’t be easy to pull off — and authorities are willing to clamp down on it to control inflation.

“Price stability is absolutely necessary for the economy to reach its potential and sustain maximum employment over the medium term,” said John C. Williams said in a speech in Puerto Rico on Friday. “I want to be clear: this is not an easy task. We must be determined, we must not slack off.

Stocks fell after the release of the employment numbers, as investors may have seen them as a sign that the central bank will continue to rein in the economy.

“To me, the tremendous momentum in the economy suggests we could move 75 basis points into the next meeting and see no long-term damage to the broader economy,” Mr. Bostick said Friday.

Central bank officials are watching wage data particularly closely. Average hourly earnings rose 5.1 percent in the year to June, down slightly from 5.3 percent in the previous month. Remuneration of non-managers 6.4 percent faster than the previous year.

While that rate of increase has slowed somewhat, it’s still higher than normal — and could push up inflation if it persists, as employers charge more to cover rising labor costs.

“Wages are not primarily responsible for the inflation we’re seeing, but they will be more important going forward, particularly in the service sector,” said Fed President Jerome H. Powell said. At his news conference In June.

“If you don’t have price stability, the economy isn’t really going to work the way it’s supposed to,” he later said. “It won’t work for people — their wages will be eaten.”

Inflation has been above the central bank’s target for more than a year. The Personal Consumption Expenditure Index Core inflation, excluding food and energy prices, the central bank tracked, rose 4.7 percent year-to-date in May.

This is the least dramatic of the core inflation measures. Prices 8.6 percent increase The June number, due next week for the year to May, as measured by the consumer price index, could show a further pickup.

Central bankers are increasingly concerned that higher spending is feeding into consumer inflation expectations, making it harder to stamp out price gains. Once workers and businesses begin to believe that prices will rise faster each year, they may change their behavior, seeking larger wage increases and regular price changes. That would make inflation a permanent feature of the US economy.

The central bank wants to block that decision. A rate hike of 0.75 percentage points this month would bring interest rates to 2.25 to 2.5 percent. Officials have signaled By the end of the year they will raise the cost of borrowing by another percentage point.

“Supply and demand will be brought back into balance, and inflation will return to our 2 percent long-term target,” Mr. Williams said. “It may take some time and may be a bumpy road.”

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