US employment data remained solid in November, reinforcing expectations that the US Federal Reserve (Fed) will lower interest rates for the third consecutive time.
On December 6, the US Department of Labor released the November employment report. Accordingly, the country created 227,000 new jobs last month, an increase compared to October affected by the storm. However, the unemployment rate also inched up to 4.2%.
On average in the second half of the year, monthly new jobs were less than 150,000. This is a milestone that officials consider sufficient to meet population growth. However, these figures are not as bad as Fed officials feared when they started reducing interest rates in September.
Statements on December 6 by many Fed officials also showed that they are willing to reduce interest rates at this month’s meeting, although cautious sentiment is rising. San Francisco Fed President Mary Daly said the job market remains solid and they are comfortable with the December interest rate cut. However, she said that once the reference interest rate gets close to a reasonable level, she will be “cautious.” a little more” about monetary easing. Previously, Daly predicted that short-term lending interest rates in the US could return to 3%.
Reference interest rate developments in the US in the period 2000-2024. Graph: CNBC
Chicago Fed President Austan Goolsbee expects that next year, “interest rates will be only slightly lower than they are now.” Cleveland Fed President Beth Hammack also said she feels interest rates will still decrease over time. But when inflation remains high and the labor market stabilizes, “the rate of decline will slow down.”
Investors currently forecast an 85% chance of the Fed cutting interest rates at its December 17-18 meeting, up from 70% just before the jobs report was released. Next year, interest rates are expected to decrease by another 75 basis points (0.75%). This decrease is lower than Fed officials’ forecast in September.
Reference interest rates in the US are currently 4.5-4.75%. “The current US economy is not necessarily great, but it is not decelerating as sharply as people feared a few months ago. The Fed can safely reduce interest rates in December and signal a pause in January,” Gennadiy Goldberg – analyst at TD Securities commented.
Fed Board of Governors member Christopher Waller said earlier this week that he was “leaning towards the possibility” of cutting interest rates, but was waiting for employment data this week and inflation next week.
On December 4, Fed Chairman Jerome Powell also repeated his comments that the Fed will be cautious in ending the war against inflation that has lasted for the past 3 years. The agency’s plans will be clearer next year. Many analysts expect the Fed to stop raising interest rates after this month’s move.