Fed has data to digest after Thanksgiving

Even though the Federal Reserve cut its federal funds rate at its October meeting, Chair Powell made it clear that future cuts were not on a pre-set path. Moderate economic growth has continued, but inflation remains somewhat elevated. The Fed had used the slowing jobs market to justify cutting in September, but newly released backlogged jobs data show that the labor market may not be as weak as had been feared.

The September employment report was stronger than had been expected, as the economy added 119,000 jobs, even as the prior two months had a net downward revision of 33,000 jobs. The unemployment rate rose from 4.3% to 4.4%, primarily due to 470,000 entrants into the labor force, of whom only 251,000 found jobs. Average hourly earnings rose 3.8% over the last year, flat to August’s gain. Other labor indicators —the number of long-term unemployed, marginally attached workers, and those employed for part-time economic reasons — all fell, likely giving the Fed more room not to cut in December. Unfortunately for the Fed, because of the government shutdown, there will be no October monthly jobs report. But Chair Jerome Powell has said policymakers have many alternative sources of information to keep it updated on economic conditions.

High prices, stock market volatility and the shutdown continue to weigh on consumer confidence, as seen in the University of Michigan survey. Consumers remain wary of current conditions, but their expectations for the future improved modestly. Year-ahead inflation expectations improved for the third month in a row, down to 4.5%, and longer-term expectations fell from 3.6% to 3.4%, a positive sign, though this is still well above the Fed’s 2% inflation target. In other data, surveys of manufacturing and services activity were mixed, but on balance, stronger in November.

In this foggy environment, views of Fed members have received more attention than usual. There does not seem to be consensus, which leaves the markets unsure of whether the Fed will cut the funds rate at its next meeting on December 10.