Jerome H. Powell, Chairman of the Federal Reserve, compared the setting of monetary policy to stumbling across a poorly lit room: You are cautious as you walk to the door to avoid making a painful mistake. .
The similarity is likely to be especially true over the next few months as Omicron’s messy data pours in, and the virus obscures the pace of economic development and leaves policymakers in the dark. But the Fed may lack the luxury of slowly making its way through the tedium this time around.
That’s why policymakers may have had a lucky break with the January jobs data. The hiring surprised forecasters, as employers reported 467,000 jobs added instead of the lackluster 125,000 that analysts had expected amid the virus surge. Unemployment rose, but wage growth was strong – average hourly earnings were 5.7% higher than a year earlier, one percentage point faster than economists had expected. economy – this is likely to reinforce the Fed’s view that keeping the mounting price pressure afloat is a priority economic focus.
Mr. Powell and his colleagues preparing to raise interest rates for the first time since 2018 in March, a move aimed at cooling the economy as inflation rose at its fastest pace in nearly 40 years. Officials are expected to find themselves in the uncomfortable position of making that move and signal what comes next, as markets are pointing to as many as five rate hikes this year. 2022, at a time when the latest job market data looks a bit bleak. Instead, the data look positive – although they should be read with caution, with quirks about how they’ve been adjusted for seasonal patterns at a time when the pandemic has made everything about Recruitment became irregular.
The Fed has been getting ready to look at job market data decimated by the virus over the past few months as officials try to gauge the actual strength of the economic recovery. The Omicron variant has been withdrawn in the United States, and there is little reason to expect a prolonged lull in hiring after a year of dizzying labor markets. Now, it will have to try to control the weirdness in the data as the virus outbreak makes economic forecasting an area of constant surprise.
“We will be humble and nimble,” Mr. Powell committed to the central bank’s policy line, speaking at a press conference last month.
“We will be led by incoming data and evolving prospects, we will strive to communicate as clearly as possible, steady progress” and transparency, he added.
The biggest problem for the Fed right now is that inflation is heating up. Used car price, which has been a big driver of the overall price increase, may be on a steadying track but has not cooled down significantly yet. Gasoline price is returnFood is getting more expensive and rents are going up.
That could potentially drive the Fed out, which often loses its support at times of strong labor markets, regardless of what’s happening in the job market.
“It’s the Omicron smog,” said Diane Swonk, chief economist at accounting firm Grant Thornton. “It won’t give us visibility.”
Fed officials are trying to make sure they don’t fall behind the curve on high inflation, allowing it to be so locked into consumer and business expectations that it becomes a lasting feature. of the economic context.
How the Fed strikes balance — and how much to slow the economy with rate hikes this year — could also have important political implications. Voters have been confused about the outlook for the economy, and President Biden is suffering in the polls.
Friday’s spike in jobs is probably good news for the Biden administration, as it offers a positive view when it is expected to be very negative. Strong wage growth, massive job growth, and low unemployment are easier said than done – even if they stem from quirks.
Ben Casselman contribution report.
https://www.nytimes.com/live/2022/02/04/business/jobs-report-january January jobs report: Live updates and analysis