What The Jobs Report Says About The Fed’s Next Moves

What The Jobs Report Says About The Fed’s Next Moves
Luke Suddards

11 months ago1 min

The US economy added 223,000 new jobs in the final month of 2022, a bit less than the month before, but a bit more than the 203,000 that economists were expecting. The unemployment rate, meanwhile, shrank, to 3.5% from November's 3.7%.

The latest data has left many investors scratching their heads as to when the Fed’s aggressive rate hikes will be felt across the labor market. But as we pointed out here, these things play out with a lag, like a line of dominoes, with the labor market at the tail end. That presents a challenge for the Fed, as it seeks to raise rates just enough to slow the economy and tame inflation, without pushing the whole thing into a recession. And it means that as we progress through 2023, we could see a major shedding of jobs as those hikes filter through.

There was at least one sign that the labor market might be cooling: wage pressures. Seen as one of the drivers of the country’s high inflation, they eased in December, with average hourly earnings not only coming in lower than expected, but also extending the steady decline that began back in March.

But overall the strength of the labor market suggests that the Fed still has more road ahead of it in its rate-hiking journey. Although the hikes might be smaller this year, they’re still going to create a tough environment for stocks. What stocks really need in order to see a sustained uptrend is for the Fed to actually cut rates, and that seems a ways off.



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