The US job market is holding up, but wage growth is losing momentum
The US economy added jobs at a solid pace in Decemberbringing the unemployment rate back to a pre-pandemic low of 3.5% as the job market remains tight, but Federal Reserve officials could find some comfort in moderating wage growth.
Nevertheless, the US Federal Reserve’s fight against inflation is far from over. Friday’s closely-watched jobs report from the Department of Labor also showed that domestic employment rebounded by a whopping 717,000 jobs last month.
The recent drop in household employment had fueled speculation that nonfarm payrolls, the main measure of job gains, were overstating job growth.
Although the Fed embarked on its fastest cycle of rate hikes since the 1980s last March, the resilience of the labor market is supporting the economy by keeping consumer spending going. However, it increases the risk The Fed could raise its target interest rate above the 5.1% high forecast last month and hold it there for a while.
“The labor market remains resilient but is losing momentum and labor shortages remain severesaid Sal Guatieri, senior economist at BMO Capital Markets in Toronto. “Although wage growth has moderated, it is far from consistent with price stability. Don’t expect the Fed to taper off hawkish speech or slow the pace of rate hikes on Feb. 1.”