yipid

WASHINGTON, Aug 20 (Reuters) – Federal Reserve officials gathering at the annual central bank conference in Jackson Hole, Wyoming, this week can take some satisfaction that the U.S. jobless rate of 4.3 percent remains low by historical standards .

But it usually is: the US unemployment experience since the late 1940s has involved unemployment rates that are mostly below the long-term average of 5.7%, until they rise rapidly and well above it, a phenomenon that Fed officials are worried about. repeating.

The emerging trend is not entirely clear.

The steady rise in the unemployment rate from 3.7% in January 2023 to 4.3% in July 2024 was also accompanied by a 1.2 million increase in the number of people looking for work – work which is usually considered a positive sign for the economy, but it can lead to higher unemployment rates.

In recent days, however, Fed officials have become more explicit that a potential weakening in the labor market has them poised to cut interest rates after keeping the U.S. central bank’s benchmark rate in the 5.25%-5.50% range for some time for more than a year. The current level is the highest in a quarter of a century.

“The balance of risks has shifted, so the debate about a potential rate cut in September is an appropriate one,” Minneapolis Fed President Neel Kashkari said in a recent Wall Street Journal interview, referring to the central bank’s policy in September 17-18. meet.

Other Fed officials, including San Francisco Fed President Mary Daly, said in other interviews that they are gaining confidence that inflation is returning to the central bank’s 2 percent target and that they are open to rate cuts.

The Fed is expected to cut its policy rate by a quarter of a percentage point next month. In addition, policymakers will provide updated forecasts showing how they think rates and the economy may play out for the rest of this year and into 2025.

Fed Chairman Jerome Powell is expected to further spell out the central bank’s view that it is about to start easing credit conditions after taming the worst burst of inflation in 40 years when he speaks at the conference on Friday at the Kansas City Fed’s Jackson Hole.

EYES ON CELLT MANDATE

Fed policymakers hope these cuts will come in time to complete what has so far developed into a “soft landing” in which inflation slows without the kind of sharp rise in the unemployment rate that has often accompanied the central bank’s efforts to slow the pace of price growth. by constricting the economy through higher interest rates. In past monetary tightening cycles, once the unemployment rate started to rise, it kept going.

In contrast, progress on inflation in the current cycle has been dramatic. The price index for personal consumption expenditures, which is tracked by the Fed for its 2% inflation target, peaked at an annualized rate of 7.1% in June 2022 and was on track for 2.5% in July – beating that target .

However, until recently the unemployment rate had barely budged, remaining below 4% for two consecutive years, while wage growth was well above the average seen in the decade before the COVID-19 pandemic.

That trend has begun to change this year, with Fed officials increasingly weighting the risks they feel they are running by keeping monetary policy too tight for too long.

Recent labor market data shows why they are worried.

The US government reported weaker-than-expected job growth in July, with employers adding just 114,000 jobs. July’s reading drove the three-month average below the pre-pandemic trend and pushed the jobless rate up two-tenths of a percentage point to 4.3 percent.

In addition, some of the ways in which the data changes from month to month as people enter and leave jobs or look for jobs are not encouraging. While the workforce is growing online, a constructive change, it also seems to be taking longer for people to find work – as shown by the growing number of people joining the workforce but leaving first through a period of unemployment instead of directly. in a workplace.

In addition, federal data on labor flows show that an increasing number of people are moving from employment to unemployment each month.

However, at the same time, jobless claims did not begin to rise dramatically and in fact kept pace with labor force growth.

Amid still-strong consumer spending and economic growth that may be slowing but remains positive, the Fed is not yet ready to consider the labor market in crisis — it just wants to avoid creating one.

In comments published to the Financial Times on Sunday, Daly said keeping rates high while inflation was falling was a “recipe for getting the outcome we don’t want, which is price stability and an unstable and unstable labor market.” .

The same sentiment was largely echoed by Chicago Fed President Austan Goolsbee, who told CBS’ “Face the Nation” on Sunday: “If you hold too long for too long, you’re going to have an employment problem of work from the mandate of the Fed. “

Report by Howard Schneider; Editing by Dan Burns and Paul Simao