Strong Jobs Report Points to Likely Fed Rate Rises in March and May
A steady gain in hiring last month keeps the Federal Reserve on track to lift interest rates next month and could prompt increases at meetings in May and June.
Fed officials had already signaled they were prepared to look past Friday’s report amid fears of a hiring slowdown from the Omicron variant of the coronavirus, which surged across the U.S. last month. Instead, the report showed surprising strength in hiring, not just last month, but over the past several months.
The report underscores just how difficult it is to forecast near-term changes in the economy right now. Employers added 467,000 jobs in January, and the unemployment rate edged up to 4%. It had fallen to 3.9% in December from 5.9% last June, a historically rapid drop.
Revisions to hiring figures for 2021 showed that while the economy added slightly fewer jobs last year than initially reported, hiring was much stronger at the end of last year. Employers added 709,000 more jobs in November and December compared with figures compiled by the Labor Department last month.
After the Fed’s two-day policy meeting last week, Chairman
Jerome Powell
said most of his colleagues were prepared to raise the Fed’s benchmark short-term rate at their March 15-16 meeting, even though they expected “the recent sharp rise in Covid cases associated with the Omicron variant will surely weigh on economic growth this quarter.”
He added, “If the wave passes quickly, the economic effects should as well…The underlying strength of the economy should show through fairly quickly.”
Mr. Powell and his colleagues have signaled they are likely to continue raising interest rates after the March increase and that they could do so at a faster pace than the central bank did during the past decade because labor demand is historically strong and inflation is well above the Fed’s 2% target.
That would help the Fed return interest rates closer to a neutral setting, estimated to be somewhere between 2% and 3%, designed to neither spur nor slow economic activity.
Officials have in recent days played down speculation that they might raise interest rates by a half percentage point in March instead of a quarter point, but they have also said that their rate rises will be guided by the data. After Friday’s report, investors in interest-rate futures market showed a nearly one-in-five probability of a larger rate increase, up from around one-in-seven the day before.
Brisk demand for goods and shortages for intermediate goods such as semiconductors have pushed inflation to its highest 12-month readings in decades. Consumer prices rose 5.7% in November from a year earlier, according to the Fed’s preferred gauge.
Developments in the labor market provided additional urgency in recent weeks for the Fed to accelerate plans to raise rates much faster than officials anticipated last summer. A stronger economy is pushing up rents and wages, which could keep inflation elevated even after supply-related disruptions and shortages of items such as cars and trucks abate.
Write to Nick Timiraos at nick.timiraos@wsj.com
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