The Fed’s Wish For US Employment Didn’t Exactly Come True

The Fed’s Wish For US Employment Didn’t Exactly Come True
Paul Allison, CFA

about 2 months ago2 mins

What’s going on here?

The Federal Reserve (the Fed) might’ve wished upon a star, but its American employment Dream didn’t come true.

What does this mean?

The latest employment data showed that the US filled around 216,000 jobs in December. And while that’s more than expected, the main kicker was the salaries being paid out. Paychecks were just over 4% higher than the same time last year, and while that does mean Americans can keep up with rising prices, it also means companies can keep upping their price tags. That’s a spiral that could keep fanning inflation, so while the Fed hardly has a reputation for partying hard, the central bank is sure nursing a long-lasting headache right now.

US jobs

Why should I care?

Zooming out: Mathemat-ish.

Central bankers round their numbers even more than shoppers during January sales. Any inflation reading below 2.5% could be deemed “close enough” to the European Central Bank’s (the ECB) 2% target, the point at which interest rate cuts are firmly on the table. But any number above, and central banks will see red – or, at least, the 3% mark. So when December’s 2.9% stat landed on desks this Friday, the ECB will have noticed the uptick from November’s 2.4%. And even though economists expected a slight increase, that data could keep rate cuts off the table for longer.

Europe inflation

The bigger picture: Artificial intelligence versus real inflation.

High interest rates might be keeping inflation steady now, but they were near zero for much of the last decade. That means something else had been keeping prices in check beforehand – and that could’ve been technology. Cost-saving tech like cloud computing solutions keep companies’ margins wide, and that means they don’t need to push high costs onto their customers in the form of beefier prices. So give it a few months or years, and artificial intelligence may work magic on firms’ books. If so, that should keep prices stable and shoppers happy.



All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG