Highlights:
- The U.S. economy added 678,000 jobs in February, and the unemployment rate fell to 3.8%.
- Jobs came in above the 400,000 estimated by Reuters economists in a survey.
- Fed Chairman Powell signaled the Federal Reserve will raise interest rates this month, following Canada, in its first rate hike since 2018.
- FOMC meeting: scheduled for March 15-16.
On Friday, March 4th, 2022 the U.S. economy added 678,000 jobs in February, above the 400,000 consensus. The unemployment rate fell to 3.8%, nearing the pre-pandemic levels of 2020.
Fed Chairman Powell hinted when testifying before congress this week that the labor market is ‘’extremely tight.’’ This has placed upward pressure on wages, as demand for workers is outpacing hiring. The Fed will need to control inflation, before wages spiral out of control.
Unemployment Rate – Federal Reserve
Increased labor market imbalances are leading to worker shortages, as employers cannot fill vacancies fast enough. The discrepancy between labor market imbalances are prevalent in sectors most impacted by the covid pandemic.
The Federal Reserve is set to raise interest rates by 0.25% at the next FOMC meeting scheduled for March 15-16. During Powell’s testimony before congress this week, he mentioned that the Federal Reserve cannot ‘’predict inflation expectations with utmost certainty.’’
Conclusion
However, the Fed has recourse that it is prepared to be ‘’opened to more aggressive moves later,’’ if inflation does not abate. Economists have supported the Fed’s 25 basis point rate hike, ahead of the February jobs report.
Furthermore, higher wages could add to the already high inflationary pressures throughout the U.S. economy. As the Fed prepares to raise interest rates this month, investors should be worrisome of what’s ahead.
