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Strong Jobs Suggest Rate Cuts May Be Delayed

January 9, 2024


December’s jobs report revealed an acceleration in job growth and hotter-than-expected wage growth. The U.S. economy added 216,000 jobs, roughly in line with the year-to-date average but more than the consensus estimates of 175,000. However, a closer look at payrolls indicates the pace of job growth may be slowing, with payrolls from the prior two months revised lower by a combined 71,000. This brings the three-month average change in payrolls from 221,000 in September to 165,000 in December, the lowest level in two years.


Partially because of a decline in the participation rate, from 62.8% to 62.5%, the unemployment rate held steady at 3.7%. And for the first time since June, average hourly earnings increased by 0.1% to 4.1% year over year. Although wage growth is slowing, it remains above its annual pre-Covid average of 2.4% from 2010 through 2019. But because the pace of inflation continues to slow, consumer purchasing power is rising and should support future consumer spending.


Overall labor trends, while cooling, continue to support our expectation for a soft landing, but we believe the Fed will need to see a sharper slowdown in jobs and a further moderation of inflation before moving to rate cuts. In our view, the futures market remains too optimistic about the timing of the first rate cut, with a 66% chance of a 25-basis-point cut in March. While there are several jobs and inflation reports to digest before the Fed’s March meeting, this jobs report suggests the Fed will remain on hold until after March.  



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