US job growth slows as Fed tightening takes effect

US job growth slows as Fed tightening takes effect
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Although the US labor market remains historically tight, US job growth slowed for the fifth straight month in December as the Federal Reserve’s aggressive rate hikes dampened economic activity.

The biggest in the world economy It added 223,000 jobs in the final month of 2022, well below a downwardly revised gain of 256,000 in November and a peak of 714,000 in February last year. Most economists had expected an increase of 200,000.

After December’s increase, monthly job gains in 2022 averaged 375,000. The number of jobs added has declined every month since August.

Despite the slowdown in job growth, the labor market is still showing resilience, which should give the Fed the confidence it needs to continue its plans to raise interest rates further.

The unemployment rate unexpectedly fell to 3.5 percent, a historic low, according to data released by the Bureau of Labor Statistics.

The US Central Bank is actively trying to cool down labour is curbing demand for new hires as it tries to ease price pressures that have pushed the market and inflation to multi-decade highs. Since March, the Fed has raised its benchmark policy rate from near zero to just below 4.5 percent in one of the most aggressive campaigns in its history.

Although the worst of the inflationary shock appears to be over, price pressures remain caught in the service sector of the economy. In an interview with the Financial Times this week, IMF First Deputy Managing Director Gita Gopinath said, he called The Fed should “stay the course” in terms of tightening, arguing that US inflation is “not yet around the corner”.

Amid labor shortages that Fed officials warn won’t be easily reversed, wage growth continues at a pace well below the Fed’s 2 percent target. inflation target.

Average hourly earnings rose another 0.3 percent in December, less than expected and slower than the previous period. On an annual basis, it increased by 4.6 percent. The labor force participation rate, which tracks the share of Americans working or looking for work, was little changed at 62.3 percent.

Fed policymakers have acknowledged that eliminating inflation will require job losses and, as a result, higher unemployment. According to the latest individual forecasts published by the Fed, most officials see the unemployment rate rising to 4.6 percent this year and then surpassing the benchmark policy rate of 5 percent and staying there for a long time.

“Catch [above 5 per cent] Until we have evidence that inflation is actually coming down, that’s really the message we’re trying to get out there,” outgoing Kansas City Fed President Esther George said on Thursday.

The Minneapolis Fed’s Neel Kashkari struck a similar tone this week, saying he expects the central bank to raise the federal funds rate by another percentage point in the coming months. He will be a voting member of the Federal Open Market Committee, which sets policy this year.

If the Fed continues on this aggressive path, economists warn that more substantial job losses could be on the horizon. These are was questioned Last month, a joint survey by the FT and the Global Markets Initiative at the University of Chicago’s Booth School of Business predicted the unemployment rate would reach at least 5.5 percent next year as the economy heads into recession.

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