On Wednesday, the Fed voted to raise interest rates 25 basis points. To support their argument, they observed that “the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined.” The following charts use data from the latest BLS employment report:
The 3 and 6-month moving averages of establishment job growth (top and bottom chart, respectively) are moving lower – the 3 month, more so. Several Fed governors have argued diminishing establishment growth is a sign of a maturing jobs market. While the latest employment report was somewhat concerning, the low level of the 4-week moving average of initial jobless and labor utilization (which implies that workers could re-enter the job market) indicate the current labor market is taught and that additional employees could re-enter the job market.
Prices are a different story. In the FOMC release, the Fed first observes, “Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.” Yet the Fed hedge’s their bets in several other places. They first note inflation has been weak: “On a 12-month basis, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent.Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.” And as for future inflation developments, the Fed stated,” The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.” They made no such statement about the labor market. The absence of concern about the jobs market indicates the Fed may be more worried about inflation than they want to let on.
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