As Pandemic 'Jobs Hole' Closes, Fed Finds Labour Market Easing Elusive

The U.S. economy ended last year with the labour scars from the COVID-19 pandemic effectively healed and a quandary for Federal Reserve policymakers so far waiting in vain for wage and job growth to cool to a sustainable level. The addition of 216,000 jobs to U.S. payrolls in December and wage growth of 4.1% both beat expectations, quelling traders’ expectations that the Fed will start cutting rates at its March meeting.
"Workers still have the upper hand in the current environment, with strong wage growth and plenty of job opportunities," wrote Nationwide Senior Economist Ben Ayers. Wage growth remaining above 4% adds to concern that inflation in labour-intensive services industries may be hard to quell and represents "another blow to the odds that the Fed will cut rates early this spring."
The language in the policy statement issued after the Dec. 12-13 session was changed to allow the possibility that no further rate increases will be needed. However, new projections showed most policymakers expect rate cuts of three-quarters of a percentage point will be appropriate by the end of the year.
Minutes of that meeting reflected an increased sense among officials that they may be approaching a point where the risks to jobs and economic growth posed by the current level of interest rates are more serious than those posed by inflation and have fallen faster than expected of late and which by some measures is near the Fed's 2% target already.
Despite the headline strength in employment, certain indicators suggest a potential slowdown. Recent revisions to job estimates, a decline in monthly payroll growth on a three-month average, and normalization of other labour market aspects indicate emerging challenges.
Federal Reserve officials are beginning to question the continued need for tight monetary policy, with some recognizing potential tradeoffs between sustaining a healthy job market and addressing inflation concerns.

(Source: Reuters)