The fall in the unemployment rate lays the foundation for the Fed to accelerate the reduction of its stimulus plan


Economists said that the sharp drop in the US unemployment rate laid the foundation for the Fed to accelerate its stimulus plan this month, giving it greater flexibility to raise interest rates earlier next year if necessary.

The world’s largest economy Add to 210,000 new jobs were added in November, about half of what economists expected, and much lower than the previous month.

But the significant improvement in the unemployment rate (down 0.4 percentage point to 4.2%) and the number of Americans re-entering the labor market confirm the timetable for the expected withdrawal of support for the Fed to take more aggressive measures in less than two weeks.

Margaret Kerins, global head of fixed income strategy at BMO Capital Markets, said: “This employment report provides them with an excuse to announce accelerated downsizing.” “They need to scale down faster so they can You can be prepared to take off faster to keep prices stable and prevent inflation from becoming entrenched.”

“This is a risk management approach, and the upside risk of inflation now exceeds the employment risk,” she added.

The newly appointed Fed Chairman Jay Powell said in his testimony to Congress this week that he will support The central bank is considering ending its asset purchase plan earlier than the pace announced last month.

At the last policy meeting in November, the Federal Open Market Committee announced that it would reduce or “shrink” the $120 billion bond purchase program by $15 billion, which means that the Fed will stop increasing the size of its balance sheet in June.

Powell expressed support for the possible end of this process “a few months in advance”-a change that has been clearly supported by other Fed officials.

in a interview Loretta Mester, chairman of the Cleveland Federal Reserve and a voting member of the FOMC next year, said in an interview with the Financial Times on Thursday that she supports accelerated downscaling so that the central bank has the “right to choose” more quickly Raise interest rates to curb inflation.

The Fed has stated that it will not raise interest rates until it achieves a sustainable average of 2% inflation rate and maximum employment rate.

Sarah House, chief economist at Wells Fargo, said the November employment report showed progress towards the latter goal.

“The labor market continues to tighten rapidly,” she said. “Yes, we are seeing disappointing growth in employment… but the fact that the unemployment rate continues to decline and the participation rate increases does show that we are continuing to move towards maximizing employment.”

U.S. labor force participation rate line chart,% shows return to work?

According to an economist at Morgan Stanley, the so-called labor force participation rate “rebounded significantly”, rising from 61.6% last month to 61.8%. Although it is still 1.5 percentage points lower than the pre-pandemic level, it is a welcome development after several months of stagnation as workers are blocked by Covid-related concerns and other issues.

The employment ratio of “golden-age” workers, which tracks the percentage of Americans in the 24-54 age group who have jobs, also made significant progress, rising to 78.8%. This is the highest level since the beginning of 2020, a jump from the 78.3% level in October.

The economist also mentioned the household survey section of the November employment report, which showed that the number of employed people increased by 1.1 million because 594,000 people joined the workforce. Household surveys are generally regarded as more volatile than “institutional” surveys, but the latter have much smaller returns.

Kristina Hooper, chief global market strategist at Invesco, said that coupled with the modest wage growth and the narrowing of the unemployment rate gap between white and black workers, the “quite positive” employment report puts the Fed on the track to advance its plan. .

“We will accelerate the reduction in December, especially because the initial anecdotal evidence we have about Omicron suggests that it is moderate,” she said.

“A large part of the Powell pivot is not that we have an accelerated taper, but that it [may mean] The rate hike is faster than expected, especially considering the Omicron variant. “

According to estimates of federal funds futures, the market’s measure of interest rate expectations indicates that the central bank will raise interest rates approximately three times next year. Barclays Bank made adjustments as early as May, while Evercore ISI and Goldman Sachs are expected to do so in June.



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