Olu Omodunbi, chief economist at Huntington Private Bank, told Craman Countdown that the jobs report points to a slowdown in the labor market.
The U.S. labor market has returned to the “tight but not overheated” conditions it was in before the coronavirus pandemic plunged the economy into turmoil, the Federal Reserve said in a report to Congress on Friday.
The report said the labor market “continued to rebalance through the first half of the year,” adding that “labor demand eased as job vacancies fell in many sectors of the economy, but labor supply continued to increase, supported by a surge in immigration.”
“The balance between labor demand and supply appears similar to the period immediately prior to the pandemic, when the labor market was relatively tight but not overheated. Nominal wage growth continued to slow,” the Fed report said.
The semi-annual report was released ahead of a two-day hearing in which Federal Reserve Chairman Jerome Powell is scheduled to testify before Congress on Tuesday and Wednesday. With inflation showing signs of gradually easing and the labor market moving toward pre-pandemic demand levels, lawmakers are expected to press Powell on how the Fed will handle monetary policy heading into the election.
Fed Chairman Powell: Prices are ‘back on disinflationary track,’ but more confidence needed
Federal Reserve Chairman Jerome Powell and other Fed policymakers have signaled they may cut interest rates later this year if inflation data continues to improve. (Kevin Deitch/Getty Images)
Job growth has been slowing in recent months, and the unemployment rate has risen steadily from 3.5% in July of last year to 4.1% as of June, up slightly from 4% a month earlier and “still historically low,” the Fed’s report said.
The latest jobs report, released on Friday, revised down the April and May employment reports by a combined 111,000 jobs as the unemployment rate rose slightly.
Inflation, based on the Fed’s recommended personal consumption expenditures price index, has been hovering around 2.6%, which policymakers view as “high,” but is approaching the point where that may no longer be the case.
U.S. economy adds 206,000 jobs, April and May figures revised down
The Fed kept interest rates on hold at their highest level since 2001 at its most recent meeting. (Photo by Jonathan Ernst/Reuters)
The consumer price index (CPI) rose 3.3% year-on-year in May, down from a peak of 9.1% in June 2022 but still above the Fed’s target rate of 2%.
The central bank is due to take another look at inflation data on Thursday when the Bureau of Labor Statistics releases its latest Consumer Price Index (CPI) report.
Policy makers are considering cutting rates as soon as September if economic data continues to point to moderating inflation, but Powell and members of the Federal Open Market Committee, which oversees monetary policy, have said any decision to cut rates would be based on data, not political considerations ahead of the November elections.
Fed-watched inflation gauge rose 2.6% in May
Federal Reserve policymakers expect one rate cut this year. (Nathan Howard/Bloomberg/Getty Images)
The report to Congress also included an essay on “Monetary Policy Independence, Transparency and Accountability”, reiterating the central bank’s “operational independence” to determine interest rates based on long-term economic considerations rather than short-term political influences.
“It is widely understood that monetary policy actions that maximize employment and price stability over the long run may include disincentive measures that have short-run economic costs, while measures that raise output and employment to unsustainable levels may not provide real benefits in the long run and may lead to higher inflation,” the Fed wrote.
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The Federal Reserve left interest rates unchanged in the range of 5.25% to 5.50% at its most recent policy meeting, the highest range for the benchmark federal funds rate since 2001.
In forecasts issued after the meeting, policymakers predicted just one rate cut this year.
Reuters contributed to this report.
