Certainly not Chairperson Powell’s “knockout, great, super strong employment report” but Still Enough for Fed to Taper.
September job growth in the US was underwhelming vs. expectations but still a green light for a Fed taper announcement by year-end. However, focusing on wage growth, average hourly earnings of 4.6% YoY (red line below) or 0.6% MoM (green line) are slightly unsettling despite the high volatility since the March 2020 crisis. We will have to wait for a continuation of the Atlanta Fed’s wage growth measure (which tracks individuals’ wages thus removing demographic and labour force composition issues) to provide further evidence of wage increases.
The larger story is that pandemic-related inflation idiosyncrasies (think: used car prices) seem to be diminishing in the CPI. However, 18 months out from a recession, other inflation dynamics should be picking up speed. Increasing wage growth should give the Fed more reason to taper, even if the headline employment figure was underwhelming.
The huge withdrawal of central bank liquidity happening currently is truly “unprecedented” (an otherwise-overused term currently). Despite all of the detailed analysis on the effects of quantitative tightening no one can predict the full impact this will have, but it is certainly not Fed Chair Yellen’s 2017 expectation of “watching paint dry”.
Inflation continues to drive recession worries. US inflation continues to drive recession worries with CPI running at 8.6% YoY in May.