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Fed on Track for Another Large Rate Rise After Jobs Report

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The September solid employment report will keep the Federal Reserve on track to approve another large interest-rate increase at its meeting next month as officials seek to lift borrowing costs high enough to soften the labor market and ease inflation pressures.

Employers added 263,000 workers in September. While that marked a slight slowdown from the average pace of hiring in recent months, it is still well above the monthly gains of around 50,000 that economists think would keep the unemployment rate from falling.

The unemployment rate dropped to 3.5% last month from 3.7% in August. Average hourly earnings rose somewhat more slowly in September than in the prior month, increasing 0.3% from August and 5% from a year earlier.

Fed officials have been raising rates rapidly this year to combat inflation that is near 40-year highs. Officials believed last year that prices were being driven up by supply-chain bottlenecks and strong demand fueled by government stimulus. But they are concerned now that tight U.S. labor markets could sustain higher prices in the years to come, even if energy prices decline and prices fall for goods such as used cars that soared over the past year.

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How would you rate the Fed’s response to inflationary pressure? Join the conversation below.

The Fed lifted rates by 0.75 percentage point at each of its past three meetings, bringing its benchmark federal-funds rate to a range between 3% and 3.25% last month—the most rapid pace of increases since the 1980s. Officials have indicated they are prepared to make a fourth increase of 0.75 point at their Nov. 1-2 meeting.

Fed officials are focused on lifting rates to levels that will slow spending, investment and hiring. Rate increases raise borrowing costs and reduce the prices of stocks and other assets.

Officials are set to debate at their meeting next month how to slow the pace of rate rises. At their Sept. 20-21 meeting, officials penciled in additional, cumulative rate increases of 1.25 percentage point this year. To achieve that, officials could lift their benchmark rate by 0.75 percentage point at their meeting next month and by 0.5 point at their gathering in December.

Fed governor

Christopher Waller

said Thursday he expected new economic data to be released in coming weeks—including Friday’s employment figures—wouldn’t significantly alter his outlook or that of his colleagues ahead of their meeting next month because inflation is running so far above the Fed’s 2% target.

Mr. Waller suggested officials would debate slowing the pace of rate rises after making their fourth consecutive 0.75-point rate rise at that meeting.

Those comments helped reinforce expectations by investors that the Fed would raise rates by another 0.75 point next month. Investors in interest-rate futures markets see an 84% probability of such an increase at the Nov. 1-2 meeting, according to CME Group.

The Federal Reserve approved a third-consecutive 0.75 percentage point rise in September. Chairman Jerome Powell said he anticipates that interest-rate increases will continue as the Fed fights high inflation. Photo: Kevin Lamarque/Reuters

A separate Labor Department report this week showed there were 10.1 million job openings in the U.S. as of the end of August, a drop of 1.1 million from a month earlier. That meant there were 1.7 job openings per unemployed person, down from 2 earlier this year—a sign that competition for workers might be easing.

Until recently, officials had been optimistic that they might be able to raise interest rates less aggressively and cool the labor market without triggering a big increase in unemployment. In May, Mr. Waller argued the Fed could achieve this so-called soft landing by reducing demand for workers by engineering a decline in job vacancies, which are historically elevated, without necessarily pushing up layoffs.

But the persistence of inflation in recent months has led officials to signal less optimism about that outcome. Mr. Waller said the already narrow landing strip for a soft landing has gotten smaller “the longer inflation has stayed up, and the more aggressive we had to be.”

Write to Nick Timiraos at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



The September solid employment report will keep the Federal Reserve on track to approve another large interest-rate increase at its meeting next month as officials seek to lift borrowing costs high enough to soften the labor market and ease inflation pressures.

Employers added 263,000 workers in September. While that marked a slight slowdown from the average pace of hiring in recent months, it is still well above the monthly gains of around 50,000 that economists think would keep the unemployment rate from falling.

The unemployment rate dropped to 3.5% last month from 3.7% in August. Average hourly earnings rose somewhat more slowly in September than in the prior month, increasing 0.3% from August and 5% from a year earlier.

Fed officials have been raising rates rapidly this year to combat inflation that is near 40-year highs. Officials believed last year that prices were being driven up by supply-chain bottlenecks and strong demand fueled by government stimulus. But they are concerned now that tight U.S. labor markets could sustain higher prices in the years to come, even if energy prices decline and prices fall for goods such as used cars that soared over the past year.

SHARE YOUR THOUGHTS

How would you rate the Fed’s response to inflationary pressure? Join the conversation below.

The Fed lifted rates by 0.75 percentage point at each of its past three meetings, bringing its benchmark federal-funds rate to a range between 3% and 3.25% last month—the most rapid pace of increases since the 1980s. Officials have indicated they are prepared to make a fourth increase of 0.75 point at their Nov. 1-2 meeting.

Fed officials are focused on lifting rates to levels that will slow spending, investment and hiring. Rate increases raise borrowing costs and reduce the prices of stocks and other assets.

Officials are set to debate at their meeting next month how to slow the pace of rate rises. At their Sept. 20-21 meeting, officials penciled in additional, cumulative rate increases of 1.25 percentage point this year. To achieve that, officials could lift their benchmark rate by 0.75 percentage point at their meeting next month and by 0.5 point at their gathering in December.

Fed governor

Christopher Waller

said Thursday he expected new economic data to be released in coming weeks—including Friday’s employment figures—wouldn’t significantly alter his outlook or that of his colleagues ahead of their meeting next month because inflation is running so far above the Fed’s 2% target.

Mr. Waller suggested officials would debate slowing the pace of rate rises after making their fourth consecutive 0.75-point rate rise at that meeting.

Those comments helped reinforce expectations by investors that the Fed would raise rates by another 0.75 point next month. Investors in interest-rate futures markets see an 84% probability of such an increase at the Nov. 1-2 meeting, according to CME Group.

The Federal Reserve approved a third-consecutive 0.75 percentage point rise in September. Chairman Jerome Powell said he anticipates that interest-rate increases will continue as the Fed fights high inflation. Photo: Kevin Lamarque/Reuters

A separate Labor Department report this week showed there were 10.1 million job openings in the U.S. as of the end of August, a drop of 1.1 million from a month earlier. That meant there were 1.7 job openings per unemployed person, down from 2 earlier this year—a sign that competition for workers might be easing.

Until recently, officials had been optimistic that they might be able to raise interest rates less aggressively and cool the labor market without triggering a big increase in unemployment. In May, Mr. Waller argued the Fed could achieve this so-called soft landing by reducing demand for workers by engineering a decline in job vacancies, which are historically elevated, without necessarily pushing up layoffs.

But the persistence of inflation in recent months has led officials to signal less optimism about that outcome. Mr. Waller said the already narrow landing strip for a soft landing has gotten smaller “the longer inflation has stayed up, and the more aggressive we had to be.”

Write to Nick Timiraos at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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