Fed-Government Rate Increases Despite Recent Booms in the Job Market and Home-Boughtness: Implications for the State of the Economy
Fed officials are expected to maintain a target range of 5.25 to 5.5 percent for interest rates when they meet on Wednesday. The overall trend of slowing job openings is a sign that rate increases have cooled the economy, according to experts.
This was the second meeting in a row in which policymakers held rates steady at 5.25% to 5.5%, following an aggressive series of increases over the previous year-and-a-half.
Inflation also remains above the Fed’s 2 percent target. The Fed’s preferred inflation measure has fallen nearly four percentage points since the summer of 2022, to 3.4 percent.
Consumers are still spending money on things like cars and Taylor Swift concert tickets despite the rise in borrowing costs. The nation’s economy grew at an annual pace of 4.9% in July, August and September, with personal spending driving much of that increase. The Fed stated that the pace of growth was strong in announcing it’s decision.
“The economy has been remarkably robust despite the fastest pace of interest rate increases in 40 years,” said Greg McBride, chief financial analyst at Bankrate. “The Fed may feel the need to raise interest rates at some point down the road, simply because the underlying economy is doing as well as it is.”
The tight job market continues to put upward pressure on wages. Employers’ cost for wages and salaries rose 4.6% for the twelve months ending in September, the Labor Department reported Tuesday. With the increase being less than the previous year, prices are likely to keep rising faster than the Fed’s 2% target.
Long-term borrowing costs have gone up in addition to the Fed’s moves on short-term rates. The average cost of a 30-year home mortgage, for example, is now 7.79% according to Freddie Mac — the highest since 2000.
According to Stephen Juneau, an economist at Bank of America, the Fed still has “more wood to chop.” His team expects that the Fed will raise rates one more time, in December, to reach a soft landing.
The federal reserve is closely monitoring job openings to make sure the economy is not overheating. The Fed raised interest rates to their highest level since 2001 in a bid to fight inflation.
The Fed has remained committed to hitting an annual inflation target of 2 percent without causing a significant spike in unemployment — a combined outcome known as a “soft landing.”
The number of people without a job is much lower than before the H1N1 outbreak. Both are signs of a tight labor market.
Julia Pollak said that the rate increase was having an effect on the labor market. ZipRecruiters survey of new hires showed that the share of hires who received a pay increase fell while the number of hires who got a signing bonus rose.
Sarah House from Wells Fargo said that the main focus of the Fed was inflation. They are reading the economy through the lens of what that means for inflation.
Wage growth grew faster than expected in the summer, as the economic growth in the third quarter accelerated. The yield on the 10-year U.S. Treasury bond, a key measure of long-term borrowing costs that undergirds nearly everything in the economy, has reached its highest level since 2007 as the outlook for growth has improved.
The report on Wednesday morning kicked off an important few days in economic news. After Fed officials meet to decide whether to raise rates, October’s jobs report will be released on Friday by the Labor Department.
The data is expected to show that hiring slowed, with the addition of 180,000 jobs, according to Bloomberg’s survey of economists, down from September’s 336,000. In September, the unemployment rate was held steady at 3.8 percent.