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blowout US jobs report for July means the Federal Reserve will probably need to keep going with the most aggressive rate hikes in decades to curb demand and inflation, according to economists.
US employers added 528,000 jobs last month, more than all estimates, the unemployment rate fell to a five-decade low of 3.5%, and wage growth accelerated, the Labor Department said.
“The good news is people can get jobs, the bad news is that inflation remains too high and our No. 1 priority is to get that down,” San Francisco Fed President Mary Daly said Friday on Fox News.
The data add impetus for the Federal Open Market Committee to raise interest rates by 75 basis points when it meets in September, matching the moves it made in June and July as it works to cool an inflation rate that’s running at a 40-year high. The strong momentum could also suggest the central bank will need to keep rates higher for longer, contrary to market expectations for rate cuts in 2023.
The labor market is “still sizzling” and that can feed into inflation, said Diane Swonk, the chief economist at KPMG LLP. “This argues for another 75 basis point hike by the Fed.”
Fed presidents this week have strongly countered that impression, arguing the central bank wasn’t intending a pivot away from aggressive hikes and that it would take significant news to alter their posture.
Friday’s jobs data, while important, was just one of four key reports that will shape the FOMC decision next month.
