The US central bank is trying to squeeze the economy enough to fight the worst inflation in decades without causing a recession.
U.S. employers slowed hiring in September but still added 263,000 jobs, a dose of encouraging news that could mean the U.S. Federal Reserve’s (Fed) drive to cool the labor market and reducing inflation is starting to progress.
Friday’s government report showed job growth last month was down from 315,000 in August and the unemployment rate fell from 3.7% to 3.5%, matching a half a century ago.
The somewhat more moderate pace of hiring in September could be welcomed by the Fed, which is trying to rein in the economy enough to tame the worst inflation in four decades without causing a recession. Slower job growth would mean less pressure on employers to raise wages and pass those costs on to their customers through price increases – a recipe for high inflation.
Public concern over high prices and the prospect of a recession is also having political consequences as President Joe Biden’s Democratic Party struggle to maintain control of Congress in the November midterm elections.
In his epic battle for curb inflation, the Fed has raised its benchmark interest rate five times this year. It aims to slow economic growth enough to bring annual price increases back towards its 2% target.
He has a long way to go. In August, a key measure of year-on-year inflation, the consumer price index, stood at 8.3%. And for now, consumer spending, the main driver of the US economy, is show some resilience. In August, consumers spent slightly more than in July, a sign that the economy was holding up despite rising borrowing rates, violent fluctuations in the stock market and inflation in the price of food, rent and other necessities.
Fed Chairman Jerome Powell has warned bluntly that the fight against inflation “will bring pain,” including in the form of layoffs and rising unemployment. Some economists remain hopeful that despite persistent inflationary pressures, the Fed will still manage to achieve a so-called “soft landing”: slowing growth enough to bring inflation under control, without going so far as to tip the economy into recession.
That would be a notoriously difficult task, and the Fed is trying to accomplish it at a perilous time. The global economy, weakened by food shortages and soaring energy prices resulting from Russia’s war on Ukraine, could be on the verge of recession. Kristalina Georgieva, managing director of the International Monetary Fund, warned on Thursday that the IMF was revising its estimate of global economic growth by $4 trillion through 2026 and that “things are more likely to get worse before they get better. “.
Powell and his colleagues on the Fed’s policy-making committee want to see signs that the abundance of available jobs — there are currently an average of 1.7 vacancies for every unemployed American — will steadily decline. Encouraging news came this week, when the Ministry of Labor announced that job offers have dropped from 1.1 million in August to 10.1 million, the lowest since June 2021.
Nick Bunker, head of economic research at the Indeed Hiring Lab, suggested that among the items on the “soft-landing flight checklist” is “a drop in job vacancies without a spike in the rate unemployment, and that’s what we’ve seen”. these last months. »
On the other hand, whatever the level of history, openings remain extraordinarily high: in records dating back to 2000, they had never exceeded 10 million in a month until last year.
Economist Daniel Zhao of jobs website Glassdoor argued that a single focus on the labor market could be overdone. Regardless of what happens with jobs and wages, Zhao suggested, Fed policymakers are unlikely to back down from their rate hike campaign until they see proof that they are actually hitting their target. .
“They want to see inflation slow down,” he said.