Inflationary Results from the Fed: The Slowing Job Openings, Suppressed Borrowing and the Slow Down in the U.S. Economy
Fed officials are expected to maintain a target range of 5.25 to 5.5 percent for interest rates when they meet on Wednesday. According to experts, the slowing job openings is a sign that the economy is cooling.
Policymakers signaled in September that, on average, they expect one more quarter-point rate increase by the end of the year. The next rate-setting meeting is scheduled for mid-December.
Inflation is still higher than the Fed goal of 2 percent. The Fed’s preferred inflation measure has fallen nearly four percentage points since the summer of 2022, to 3.4 percent.
Despite the sharp run-up in borrowing costs, consumers are still spending freely on cars, restaurant meals and Taylor Swift concert tickets. The economy grew 4.9% in the third quarter, with personal spending driving much of that increase. The Fed noted that “strong” pace of growth in announcing its decision.
Greg Mcbride, chief financial analyst at Bankrate said the economy has been robust despite the fastest pace of interest rate increases in 40 years. The underlying economy is doing well and may prompt the Fed to raise interest rates in the future.
The tight job market continues to put upward pressure on wages. Employers’ cost for wages and salaries increased by 4.6% during the twelve months ending in September. While that is a small increase, it will likely keep the prices climbing past the 2% target imposed by the Fed.
In addition to the Fed’s moves on short-term interest rates, long-term borrowing costs — which are set by the bond market — have also been going up. The average cost of a 30-year home mortgage, for example, is now 7.79% according to Freddie Mac — the highest since 2000.
The Fed has already raised short-term interest rates eleven times since March of last year, pushing its benchmark rate from near zero to the highest in over 20 years.
The job openings the Federal Reserve monitors are closely watched to determine if the economy is too hot. The Fed has raised interest rates to their highest levels since 2001 in an effort to fight inflation.
The Fed has remained committed to hitting an annual inflation target of 2 percent without causing a significant spike in unemployment — a combined outcome known as a “soft landing.”
Job openings, which reached a record of more than 12 million in March 2022, have trended down, as has the job-quitting rate, while separations have been flat. There were 1.5 openings for every unemployed worker in September, the same as in August.
Julia Pollak, a chief economist at ZipRecruiter, said that less labor market turnover indicates rate increases are having an effect. ZipRecruiter found that the share of hires getting a pay increase, signing bonus or recruited to their new jobs each went down.
According to Sarah House, a senior economist at Wells Fargo, inflation remains the primary focus of the Fed. They look at the economy through a microscope, asking how this will impact the path of inflation.
Wage growth grew faster than expected over the summer and economic growth accelerated in the third quarter. The yield on the 10-year U.S. Treasury bond, a key measure of long-term borrowing costs that undergirds nearly everything in the economy, has reached its highest level since 2007 as the outlook for growth has improved.
The report on Wednesday morning kicked off an important few days in economic news. The jobs report for October will be released by the Labor Department after Fed officials decide on rates.
The data is expected to show that hiring slowed, with the addition of 180,000 jobs, according to Bloomberg’s survey of economists, down from September’s 336,000. The unemployment rate is expected to go up in October, after having been stable in September.