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Friday, June 21, 2024

US Labor Market Growth and the Powell Testimony

Key Takeaways:

  • The Fed does not expect to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward the 2% objective.
  • ADP Employment Change report revealed an increase of 140,000 jobs in the private sector for the month of March 2024.

The United States ADP Employment Change report revealed an increase of 140,000 jobs in the private sector for the month of March 2024. While this figure fell slightly short of the consensus expectation of 150,000, it still represents a significant improvement from the previous month’s 107,000 jobs added.

Fed Chair Powell’s Testimony

This job growth aligns with the recent testimony by Federal Reserve Chair Jerome Powell during his semiannual Monetary Policy Report to the Congress. In his statement, Chair Powell highlighted the progress made by the economy over the past year, particularly in terms of the labor market. He noted that while inflation remains above the Federal Open Market Committee’s (FOMC) objective of 2 percent, it has eased substantially without causing a significant increase in unemployment.

The ADP Employment Change report’s findings support Chair Powell’s assessment of the current economic situation. The steady job gains indicate that the labor market remains relatively tight, with supply and demand conditions gradually moving towards a better balance. This is further evidenced by the strong job creation being accompanied by an increase in the supply of workers, especially among the 25 to 54 age group, and a continued pace of immigration.

Despite this data, Chair Powell acknowledged that labor demand still exceeds the supply of available workers, as reflected in the jobs-to-workers gap. However, he also pointed out that job vacancies have declined, and nominal wage growth has been easing, suggesting that the labor market is slowly moving toward equilibrium.

The Potential Future

The Federal Reserve’s monetary policy stance has played an important role in guiding the economy toward this path of stability. After significantly tightening the stance since early 2022, the FOMC has maintained the target range for the federal funds rate at 5-1/4 to 5-1/2 percent since its meeting last July. This restrictive stance, coupled with the continued shrinking of the Fed’s balance sheet, has been effective in putting downward pressure on economic activity and inflation.

Chair Powell stated that the FOMC believes the policy rate is likely at its peak for this tightening cycle. If the economy continues to evolve as expected, the Federal Reserve may consider dialing back policy restraint at some point this year. However, he cautioned that the economic outlook remains uncertain, and ongoing progress toward the 2 percent inflation objective is not guaranteed.

Publisher and editor of LJLNews. I am a Stock Market enthusiast, with an interest for politics. I hope you enjoy reading the articles! Contact me at: Lazaruslucas@ljlnews.com

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