Is the Fed behind the curve with this labor market?
In 2022, I argued that the Federal Reserve won’t pivot until the labor market breaks. This means that the Fed will need to create such a slowdown in the labor market that nobody will question their action when they pivot. This is what I call the “cover cuts” policy. After today’s jobs report and the negative revision to this report and the previous ones, it is safe to say nobody outside of crazy people who want to see America go into a recession will question the Fed rate cut that will happen this month.
However, even if the Fed had already cut rates three times this year, they would still be in restrictive policy. So, we are far from any natural pivot in my mind — all we have done is start the discussion about putting the rate-cut cycle into the neutral stance. I say this because if the Fed thought the economy was breaking, they would leave hints about what accommodative rate policy would look like. Today, we stand with no rate cuts, but the first will come this month.
From the BLS: Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate changed little at 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in construction and healthcare. First, the unemployment rate fell after some adjustments to temporary layoffs in the last month. It stands at 4.2%, while the lowest level was 3.4% in January and April 2023. If the labor force grows, the unemployment rate can increase without jobs being lost in these reports. This means that more people are looking for work but are not getting it. I want to leave this data line here for everyone: the unemployment rate for those who never finished high school is at 7.1% today.
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