(Bloomberg) -- The latest snapshot of the US labor market nudged the Federal Reserve closer to lowering interest rates later this month, but didn’t quite seal the deal with a key inflation report looming.
US employers added 227,000 jobs in November, after severe weather and strikes weighed on payrolls the previous month. The bounce-back came alongside an uptick in the unemployment rate and higher-than-expected wage growth, according to government data out Friday.
Smoothing out volatility, payrolls growth has averaged 173,000 over the past three months — a step down from the robust pace seen earlier this year. The figures reinforce a picture of a labor market that has slowed but remains broadly solid, a view several Fed officials have taken.
“The labor market is in a sweet spot and the Fed wants to keep it there, so that would give them enough ammunition to cut in December,” said Stephen Juneau, US economist at Bank of America Corp. “But we do think it still depends on the inflation data.”
Policymakers have emphasized they don’t want to see further weakening in the labor market and that lowering borrowing costs provides insurance against that. However, they’re still wary of sticky inflation and several are in favor of cutting rates gradually.
Speaking after the report, Fed Governor Michelle Bowman reiterated that she prefers to lower interest rates cautiously. Chair Jerome Powell used similar language when he spoke earlier this week.
Cleveland Fed President Beth Hammack, also speaking after the data release, said she favored one rate reduction over the Fed’s next two meetings.
“We are at or near the point where it makes sense to slow the pace of rate reductions,” Hammack said Friday in remarks prepared for an event hosted by the City Club of Cleveland.
Meanwhile, recent data has signaled a possible stall in inflation’s descent toward the Fed’s 2% target, raising the stakes for next week’s report on consumer prices. The figures are expected to show core inflation, which excludes the volatile categories of food and energy, remained stubborn in November, according to economists surveyed by Bloomberg.
The Fed cut its benchmark policy rate at its last two meetings, including a larger-than-usual reduction in September. After holding rates at a high level for more than a year, officials have described the cuts as both an acknowledgment that inflation has eased, as well as an effort to keep the cooldown in the labor market from accelerating.
Other details within the report pointed to underlying softening. The so-called job-finding rate — the share of workers that went from unemployed to employed in the month — slid to just 21.3%, the smallest since the onset of the pandemic. It’s also taking longer for out-of-work Americans to find jobs — the number of people unemployed for at least 27 weeks jumped to the highest in nearly three years.
Following the figures, investors upped their bets the Fed will again lower rates following their meeting Dec. 17-18. They now see a roughly 90% chance of a cut, according to futures markets.
Forecasts from the Fed’s September meeting showed nine policymakers then expected a maximum of 75 basis points of cuts this year — which has already happened. Those projections will be updated at the December meeting, and they may imply fewer rate cuts next year given a still-solid labor market and stalling progress on disinflation, according to Thierry Wizman, global currencies and interest-rate strategist at Macquarie Group Ltd.
What Bloomberg Economics Says...
“The November jobs report doesn’t seal the deal for a rate cut in December, but it also doesn’t take it off the table. We think the November CPI report (due Dec. 11) will be critical for the Fed’s decision this month.”
— Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou. To read the full note, click here
“I think it is going to be a cut at the next meeting. They have kind of already committed to that and nothing has changed in the data to change that,” Wizman said. “But with regard to 2025, a lot has changed.”
Other data out Friday somewhat undermined the argument for another rate cut. US consumer sentiment rose to the highest since April and year-ahead inflation expectations picked up to a five-month high as Democrats saw a greater risk of price pressures from anticipated tariffs, according to the University of Michigan.
“The absence of a hotter rebound overall means the first check for a December cut is passed,” Evercore ISI’s Krishna Guha wrote in a note to clients, referring to November payrolls. “We still need to pass the inflation check before we can be confident December is close to a lock.”
(Updates with Hammack comments from seventh paragraph.)
©2024 Bloomberg L.P.