Federal Reserve officials received a complicated signal from February\u2019s employment report, which showed that job growth retained substantial momentum nearly a year into the central bank\u2019s campaign to slow the economy and cool rapid inflation. But it also included details hinting that the softening the Fed has been trying to achieve may be coming.<\/p>\n
Policymakers have raised interest rates from near zero to above 4.5 percent over the past year, and Jerome H. Powell, the Fed chair, signaled this week that the size of its March 22 rate move will hinge on the strength of incoming data \u2014 making Friday\u2019s employment report a critical focal point for investors.<\/p>\n
But the figures painted a complicated picture. Employers added 311,000 workers last month, which was more than the 225,000 expected and a sign that the pace of hiring has cooled little, if at all, over the past year. At the same time, wage growth moderated to its slowest monthly pace since February 2022 and the unemployment rate ticked up slightly.<\/p>\n
\u201cIt\u2019s exactly what I wasn\u2019t hoping for, which is a mixed report,\u201d said Michael Feroli, chief U.S. economist at J.P. Morgan.<\/p>\n
That makes determining the Fed\u2019s next steps more challenging.<\/p>\n
Officials raised rates in large three-quarter-point increments four times in 2022, making borrowing sharply more expensive in hopes of restraining a hot economy. But they had been slowing the pace of adjustment for months, stepping down to half a point in December and a quarter point in February. Policymakers thought they had reached the point where interest rates were high enough to significantly cool the economy, so they had expected to soon stop raising rates and simply hold them at a high level for a while.<\/p>\n
What is inflation? <\/strong>Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.<\/span><\/p>\n What causes inflation? <\/strong>It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production\u00a0and supply chain problems.<\/span><\/p>\n Is inflation bad? <\/strong>It depends on the circumstances. Fast price increases spell trouble, but moderate price gains\u00a0can lead to higher wages\u00a0and job growth.<\/span><\/p>\n How does inflation affect the poor? <\/strong>Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities\u00a0like food, housing and gas.<\/span><\/p>\n Can inflation affect the stock market? <\/strong>Rapid\u00a0inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.<\/span><\/p>\n But data from early 2023 have surprised the central bank. The labor market, inflation and consumer spending all showed unexpected signs of strength, which made policymakers question whether they might need to raise rates by more \u2014 or even return to a faster pace of adjustment. That\u2019s why central bankers have been looking to incoming data from February for a sense of whether the robust January figures were a one-off or a genuine sign of strength.<\/p>\n \u201cIf the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,\u201d Mr. Powell told lawmakers this week, emphasizing that \u201cno decision has been made on this.\u201d<\/p>\n Friday\u2019s figures suggested that hiring is genuinely resilient: Employers added more than half a million workers in the first month of the year, even after revisions.<\/p>\n But the slowdown in wage growth could be good news for the central bank. Officials have been nervously eyeing rapid wage gains, fretting that it will be difficult for inflation to cool at a moment when employers are paying more and trying to make up for those climbing labor bills by passing the costs along to consumers.<\/p>\n That said, a closely-watched measure of wages for production workers who are not managers \u2014 rank-and-file employees, basically \u2014 held up. Wage data bounce around, and economists often watch that measure for a clearer reading of underlying momentum in pay gains.<\/p>\n Priya Misra, head of global rates strategy at TD Securities, said she thinks the report makes the size of the Fed\u2019s next rate move a \u201ctoss up.\u201d The pace of hiring is likely to suggest to officials that the labor market is still hot, but the other details could give them some room to watch and wait.<\/p>\n \u201cIt\u2019s not an obvious slam-dunk for 50,\u201d Ms. Misra said, referring to a half point move.<\/p>\n The upshot, she said, is that investors will need to closely watch in the Consumer Price Index report that is scheduled for release on Tuesday. The fresh figures will show how hot inflation was running in February, giving central bankers a final critical reading on where the American economy stands heading into their decision.<\/p>\n \u201cIt makes this the most important C.P.I. report \u2014 again,\u201d Ms. Misra said.<\/p>\n Economists in a Bloomberg survey expect monthly inflation readings \u2014 which give a clearer sense of iterative progress on cooling price increases \u2014 to slow on an overall basis, but to hold steady at 0.4 percent after stripping out volatile food and fuel prices.<\/p>\nThe State of Jobs in the United States<\/h2>\n
The labor market continues to display strength, as the Federal Reserve tries to engineer a slowdown and tame inflation.<\/h3>\n