Resilient Rebounds in Jobs Report for 2023
Introduction
As inflation gathered force in 2021 and 2022, the Federal Reserve notoriously waited too long to raise interest rates, allowing consumer prices to continue to climb sharply, Fed officials now acknowledge. Now that inflation is easing, the Fed may be poised to make another blunder by moving too slowly to cut rates and triggering a recession, some economists argue. This article explores the current state of the Federal Reserve’s interest rate decisions and the potential risks involved.
What is the current Fed interest rate?
From March 2022 to July 2023, the Fed lifted its key short-term interest rate from near zero to a 22-year high of 5.25% to 5.5% to help wrestle down inflation, which already was slowing as pandemic-related supply chain snarls resolved. Since then, the central bank has held the rate steady.
Is inflation really high right now?
Several reports since the Fed meeting seemingly have vindicated the Fed’s cautious approach. A “core” inflation measure that strips out volatile food and energy items increased a hefty 0.4% in January, keeping the annual rise at 3.9%, according to the consumer price index.
Is the US economy strong right now?
Last month, meanwhile, U.S. employers added a booming 353,000 jobs and average annual wage growth – which feeds into inflation – jumped to 4.5% from 4.3%. The economy also grew at a sturdy 3.3% annual rate in the last three months of 2023 and a solid 2.5% for the entire year. The takeaway: The economy is not only on solid footing but could drive inflation higher again as consumers continue to spend their rapidly rising paychecks.
Are layoffs on the rise?
Meanwhile, although job gains have been vigorous, the rate of hiring by employers in November hit the lowest level since 2014, excluding the pandemic recession. In other words, net job gains have been strong because employers have been loath to lay off workers following severe pandemic-related labor shortages. And although the nation’s gross domestic product grew smartly last year, an alternative measure of economic output that some analysts say is more accurate – gross domestic income – has increased feebly. Economists project economic growth will slow to a still decent 2.1% this year but see a 36% chance of recession.
Will inflation rise again?
While personal consumption expenditures price index inflation has come down, prices of services such as health care, auto insurance, and dining out have continued to increase sharply, in part because of labor shortages that have kept average employee pay increases elevated. Economists have differing views on the risks of a price surge versus a recession, and the path to achieving 2% inflation is not guaranteed.
Disclaimer: The views and information presented in this article are solely for informational purposes and do not constitute financial advice.
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