FOMC minutes confirm Fed’s priority to fight inflation; US job growth remains solid
The FOMC minutes released this week showed further evidence that the Feds are centered on containing inflation. Investors cheered this week, though fears of a recession linger.
FOMC policymakers judged that an increase of 50 or 75 basis points "would likely be appropriate at the next meeting" given the current economic outlook. They also "recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist." With the potential for the firmer policy to slow growth, Fed officials also removed language from the June policy statement that "indicated an expectation that appropriate policy would result in a return of inflation to 2% and a strong labor market."
Further, on Friday morning, U.S. job growth proved to remain solid. The hotter-than-expected labor market eases worries of an economic slowdown, but it complicates efforts to fight inflation. The U.S. economy added 372,000 jobs in June, a strong showing, and wages climbed 5.1 percent, a still-rapid pace as the Fed awaits slowdown. The jobs report suggests the Biden economy is not yet in a recession, though there are a number of measures that indicate a slowing economy, including: declining retail sales, consumer confidence, the housing market, start-up funding, the stock market, and the bond market.
The new jobs number is in line with the average gain over the last few months, including 368,000 in April and 384,000 in May. Employers have continued to compete for workers in recent months, with initial unemployment claims rising only slightly from their low point in March. Strong demand for workers is also evident in the 11.3 million jobs that employers had open in May, a number that remains close to record highs and leaves nearly two jobs available for every person looking for work.
The Fed is raising interest rates to cool down the economy to bring inflation under control, and slowing demand should weigh on hiring and pay. The question is how much wage growth moderation is needed to ease inflation concerns.
By all accounts, we are at an interesting juncture in time. There is widespread fear that the economy is slowing, and several data points back that up. But the labor market is a real sign of strength, even with rising rates and inflation. The job market remains healthy and doesn’t line up with a market on the edge of recession.
Elsewhere, as mortgage rates and home prices remain relatively high, the National Association of Realtors’ housing affordability index fell 102.5 in May, the association said Friday, the lowest level since the index fell to 100.5 in July 2006.