The Federal Reserve is considering when and by how much to cut interest rates, and Friday’s jobs report will give policymakers an update on how the economy is performing before their next policy meeting.
Fed officials are meeting on March 19 and 20 and are widely expected to leave interest rates unchanged at that meeting. But investors believe they could begin cutting interest rates as early as June, a view that Federal Reserve Chairman Jerome H. Powell did not provide much support or positive influence during his testimony before Congress this week.
“We are waiting to become more confident that inflation is moving to 2 percent on a sustained basis,” Powell told lawmakers Thursday. “When we have that confidence and we are not far away from it, it will be appropriate to scale back the level of restrictions.”
The Fed’s next steps will be primarily monitoring progress on inflation, but also keeping an eye on the labor market. If job growth is strong and the labor market is robust enough that wages are rising quickly, price increases could last longer as companies try to cover their costs. However, if the labor market slows sharply, that could prompt Fed officials to cut interest rates sooner.
Unemployment has remained low for now and wage growth is solid – but not as strong as 2022 highs. That gives Fed officials comfort that labor supply and demand for new hires are even returning to balance without a painful one economic downturn.
“Although the gap between jobs and workers has narrowed, demand for labor still exceeds the supply of available workers,” Powell said this week.
If recent progress in rebalancing continues, it could give the Fed the opportunity to create what is often called a “soft landing”: a situation in which the economy cools and inflation eases, so that the Fed can refrain from aggressive interest rate policy without this being the case recession.
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2024-03-08 10:02:27
www.nytimes.com
