Slow employment makes the Fed’s September cutback statement unlikely

U.S. Economic Update

A sort of A sharp slowdown Economists said that US job growth ruled out the possibility that the Fed announced this month that it plans to start reducing its pandemic stimulus program, as the spread of the delta coronavirus mutation has disrupted the economic outlook.

Following the very strong employment reports in June and July, the U.S. central bank Ready This year, the $120 billion monthly asset purchase plan has been cut, and the plan said it will continue until “substantial further progress” is achieved in achieving maximum employment and an average inflation target of 2%.

These gains, coupled with soaring consumer prices in the U.S., Push up inflation The highest rate in 13 years has prompted several regional Fed presidents to call for more direct adjustments to be announced as early as the September policy meeting.

But the shockingly weak employment report in August showed that only 235,000 jobs were created last month, while 1.1 million Post In July, this timetable was overturned and supported the Fed to be more cautious when planning to exit the financial market.

“There is a feeling that we are heading in the right direction in the labor market. [but] Lydia Boussour, senior US economist at the Oxford Economics Institute, said that this slowdown in job creation and the fact that the Delta variable is still a key downside risk may help to wait patiently.

“This excludes the possibility of an announcement in September that it will start reducing asset purchases,” added Joseph Song, a senior U.S. economist at Bank of America. “The key question going forward is whether this is a one-off print or whether we will continue to see a slowdown.”

Although the unemployment rate did fall from 5.4% last month to 5.2% in August, the delta variable has dealt a major blow to some important sectors, which eventually began to recover with the national vaccination campaign.

According to the U.S. Bureau of Labor Statistics, there was no job growth in the leisure and hospitality industries that month-considering the average monthly increase of 350,000 jobs over the past six months, this number has dropped suddenly.

Retailers and restaurants have also been forced to lay off workers, with a total of approximately 70,000 layoffs. More Americans reported last month that they were unable to work because their employers closed or lost businesses due to the pandemic. This indicator rose from 5.2 million in July to 5.6 million in August.

Prior to Friday’s report, the economic pressure caused by the Delta variant was not yet obvious.Federal Reserve Chairman Jay Powell Suggest At the end of July, the current wave may have a milder impact on the economy, but the extent of the labor market frustration last month makes this view doubtful.

“So far, we have seen central banks generally pay attention to the Delta variant [and] Ellen Gaske, chief economist at PGIM Fixed Income, said this did not derail them from the policy path. “But slower data starts to emerge, and the Fed may become more cautious and pause.”

Although the possibility of action in September is slim, most economists and investors still expect the central bank to announce its intention to reduce its support sometime this year.

At the Jackson Hole seminar last month, Powell stated that the inflation threshold for the central bank to slow down bond purchases has been reached and that the labor market has also made “significant progress”. He is also optimistic that many of the factors that prevent workers from filling a record number of job vacancies-including lack of childcare services and increased unemployment benefits-are “probably fading.”

Employment data for August provides new evidence that labor shortages still severely hinder recruitment and employers have to raise wages to attract new employees. Simone Mocuta, senior economist at State Street Global Investment Consulting, said that average hourly wages increased by 0.6% from July and 4.3% year-on-year, which highlights the impact of supply constraints on employment growth.

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She said: “When the number of employed people in an economy is reduced by more than 5 million compared to Covid before, there will be huge conflicts and contradictions, but there will be record vacancies.” “Clearly there is friction and no one knows about it. How long will it last.”

Peter Williams of Evercore ISI warned that the dramatic increase in wages and the prospect of pushing up headline inflation may also provide material for officials who are concerned about rising price pressures and advocate reduced currency support. He now expects greater disagreement within the Fed on the economic outlook.

The current debate is centered on whether the Fed is confident enough in the recovery of the labor market to announce the scale reduction at its November meeting, at which time it will only analyze one more employment report. Constance Hunter, chief economist at KPMG, said that in such an extremely uncertain period, it is more likely to issue a December notice.

“We are not sure if this number is the beginning of a new trend or a short-lived one,” added Paul Ashworth, chief U.S. economist at Capital Macros. “All you can do is wait.”

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