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Strong Jobs Report Doesn't Resolve Fed Debate on Next Rate Rise -- WSJ

The Wall Street Journal · 01/06/2023 09:40

By Nick Timiraos

Friday's employment report does little to clarify how much the Federal Reserve will raise interest rates at its next policy meeting.

The Fed raised its benchmark short-term rate aggressively last year, including by unanimously approving a 0.5-percentage-point increase last month. The rise followed four larger increases of 0.75 point and lifted the rate to a range between 4.25% and 4.5% -- a 15-year high.

Officials are keeping their options open for their Jan. 31-Feb. 1 meeting by declining so far to spell out what might lead them to approve another half-point rate rise or to step down to a more traditional 0.25-point increase.

The employment report, which showed that strong job growth continued to tighten the labor market in December, is important because many Fed officials have shifted their attention from inflation readings to the labor market. They are concerned that inflation, while expected to decline this year, could settle at uncomfortably elevated levels, particularly if it leads workers to bid up wages.

The report offered little evidence that the Fed's rapid rate rises last year have significantly slowed hiring. Employers added 223,000 jobs in December and the unemployment rate dropped to 3.5% from 3.6% in November, returning to a 50-year low.

But revisions to figures on wage growth showed recent gains weren't as brisk as previously thought and instead indicated they continued slowing through the end of the year. Hourly wages rose 0.3% in December, bringing the 12-month increase to 4.6%, the lowest such reading in more than a year.

Last month, the Labor Department reported wage growth had accelerated in November, rising 5.1% from a year earlier. But on Friday, revisions to that data brought the annual increase to 4.8% in November.

Fed officials have broadly agreed that unemployment is likely to rise this year and next year as they combat inflation that is coming off 40-year highs. Projections from 19 policy makers submitted at their meeting last month show most expect the jobless rate to rise to between 4.4% and 4.7% this year. Increases of that magnitude have nearly always coincided with a recession.

"There will be some softening in labor market conditions," said Fed Chair Jerome Powell at a news conference last month. "And I wish there were a completely painless way to restore price stability. There isn't. And this is the best we can do."

Job openings held nearly steady at historically high levels in November, adding to evidence the labor market remained strong heading into 2023, according to a separate Labor Department report released Wednesday. The figures showed layoffs stayed low and a larger share of workers quit their jobs in November than a month earlier, a sign Americans were still confident in their employment prospects.

The data point to a solid overall job market even though some large technology companies are announcing layoffs.

Write to Nick Timiraos at Nick.Timiraos@wsj.com

(END) Dow Jones Newswires

January 06, 2023 09:40 ET (14:40 GMT)

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