[Baltimore Sun] Labor market, growth remain solid, keeping Fed on track for another rate cut
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The Federal Reserve appears to be on track to move forward with another reduction of its benchmark interest rate next week after fresh data showed a sturdy jobs market and healthy levels of growth over the last three months.
Several economic reports released this week and others earlier this month paint a solid picture of the U.S. economy: job growth and unemployment are solid, the economy continues to grow at a healthy pace and inflation has remained steady.
The ADP National Employment report released on Wednesday showed the private sector added 233,000 jobs last month, a noticeable increase from 143,000 in August. That data comes after last month’s jobs report blew past expectations and showed employers are getting back to adding positions and keeping the nation’s unemployment level at historically healthy levels.
It comes as the Fed has shifted focus from an all-out blitz to bring prices down, lowering rates by a half percentage point in September after increasing them at a record-breaking pace from 2022 into 2023, and is more concerned about keeping the economy on track.
Central bank officials are trying to balance keeping the economy from shrinking while also keeping rates high enough to slow inflation. Higher interest rates slow the economy by making it more expensive to borrow money, thus reducing spending and limiting pressure on prices.
Despite the higher interest rates, the economy has continued to grow at a healthy pace with the Commerce Department reporting Wednesday that the nation’s gross domestic product, which measures goods and services across the economy, grew 2.8% in the third quarter, which ran from July to September.
The 2.8% increase was a slight slowdown from the first two quarters but still puts the economy on a healthy track that has defied frequently predicted expectations of a recession when inflation was at its peak and the central bank was ratcheting up interest rates.
The Fed will get one final major piece of data on Friday with the release of the jobs report, which economists expect to be distorted due to impacts from two massive hurricanes that pummeled the Southeast and a strike at Boeing that affected manufacturing statistics.
“We look for Fed Chair [Jerome] Powell to once again be the voice of reason corralling the FOMC (Federal Open Market Committee) to prudently ease monetary policy next week,” said EY chief economist Gregory Daco. “With economic growth likely to moderate and disinflation factors still at work, we expect inflation to remain on a gentle descent toward the 2% target into 2025. We continue to expect the Fed to ease policy by 25 (basis points) at every meeting through June next year amid resilient but moderating growth and cooling labor market trends.”
Inflation has been cooling for two years despite some bumps in the road, a trend that has continued after the first rate cut following a rapid increase in rates to get price increases in check. Inflation cooled modestly in September to 2.4% compared with a year prior in a slower but still steady decline in price increases.
More evidence of moderating prices came on Thursday when the Fed’s preferred measure of inflation, the personal consumption expenditures index, showed prices were 2.1% higher in September compared with a year earlier, nearly at its target of 2%. It was also an improvement from the month prior, which came in at 2.3%.
It is the lowest reading in three and a half years and met economists’ expectations. The report also showed that incomes are continuing to grow, giving consumers some wiggle room to deal with higher prices, and that Americans are still spending money.
“Core” inflation, which removes food and energy costs that are highly volatile, was 2.7% for the third consecutive month, a sign that underlying price pressures remain somewhat sticky but are not spiraling out of control.
Economists are expecting the Fed to move forward with another cut at the end of its November meetings, which will come two days after Election Day. Despite some noise in recent economic data, they still see signs that it will be safe to move forward with another cut.
“The Federal Reserve is mindful that incoming data, including the monthly jobs report, risks being whipped around by temporary factors. It is generally a good practice not to make too much out of one month’s data,” said Mark Hamrick, Bankrate’s senior economic analyst. “The same expectation holds, at least for now, for the Dec. 18 FOMC announcement. The Fed is walking a tightrope between the goals of its dual mandate, maximum employment and stable prices.”
Have a news tip? Contact Austin Denean at atdenean@sbgtv.com or at x.com/austindenean. Content from The National Desk is provided by Sinclair, the parent company of FOX45 News.
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