The Fed is considering not rushing to lower interest rates. The United States (US) central bank, the Fed, is not expected to rush to lower interest rates, considering strong job growth data in February and signs of a cooling labor market.
The Labor Department report recorded an additional 275,000 jobs in February, higher than economists’ estimates of 200,000 jobs. Meanwhile, the US unemployment rate rose to 3.9%, the highest in 2 years, although still below the level the Fed considers sustainable in the long term.
On the other hand, wage growth continued to weaken, rising 4.3% in February from a year earlier, lower than 4.4% in January. Policy makers, the Fed, will not see that growth as consistent with their 2% inflation target, but moving in the right direction.
Fed Chair Jerome Powell said on Capitol Hill this week that his party views the economy as healthy and policymakers are ‘not far off’ from having enough confidence in the downward trajectory of inflation to start lowering interest rates.
Futures contracts that benchmark the Fed’s current policy rate suggest about an 80% chance the Fed will start cutting rates in mid-June, with a little more than a one-in-four chance of starting on May 1.
Traders firmed up their expectations for a 1% rate cut by the end of this year, equivalent to a quarter-point drop in the Fed’s remaining seven policy-setting meetings this year. For your information, Fed policymakers will next meet on March 19-20, where the majority expect the Fed to maintain interest rates in the range of 5.25%-5.5%.
Powell said this week that the range would likely be the top and put downward pressure on price pressures. Meanwhile, policymakers are keeping a close eye on signs that the labor market is cracking under pressure from the highest US policy rates in decades.
