That darn struggling US economy just can't seem to stop creating jobs. Data this morning from the Bureau of Labor Statistics show that 353,000 new jobs were added in January, far ahead of expectations. What's more, the initially-reported data for the two preceding months were revised higher by a total of 126,000. The unemployment rate held steady at 3.7 percent for the third month in a row.
There can be no real doubt that Fed Chair Jay Powell had some advance knowledge of the data ahead of this week's FOMC meeting, so it is no surprise that he used his press conference to pour cold water on the notion that rate cuts could start as early as March. Looking beyond the headline figure, there is another element in today's release that serves to push rate cut expectations further into the future. Average hourly earnings rose sharply in January, up 0.6 from December, pushing the year-on-year increase to 4.5 percent from 4.1 percent previously. This is clearly not compatible with the FOMC's wish to see inflation moving "sustainably" towards 2 percent before it contemplates rate cuts.
Indeed, with the economy growing strongly and creating so many new jobs, why would the FOMC even consider risking an early rate cut, which could backfire by rekindling inflation expectations? The economy clearly ain't broke, so there is little need to try to fix it. There are even signs that the US public is starting to take a somewhat less jaundiced view of the state of the economy, to which one can only say, what took you so long?
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