Robust jobs report means the Fed can wait

The U.S. economy is doing just fine, thank you very much.

The March employment report confirmed that the labor market continues to add new jobs, even as the workforce has resumed growing. The unemployment rate eased lower, from 3.9% to 3.8%, and 303,000 new jobs were added. Average hourly earnings rose 0.3% in March, and over the last year, the increase slowed from 4.3% to 4.1%. While that may seem bad, it is in keeping with slowing inflation and helps to reassure the Federal Reserve that wage pressure is cooling. 

Other data released last week showed that manufacturing has moved back into expansionary territory, according to the ISM Purchasing Managers Survey. While prices paid rose more than expected, new orders and employment both increased more than expected. The ISM services index, covering the other main part of the economy, slowed modestly, with prices paid falling more than expected but employment rising.

All this positive data has markets rethinking the timing of Federal Reserve rate cuts. The Fed follows a dual mandate of promoting maximum employment and stable prices in the context of moderate long-term interest rates. At 3.8%, the unemployment rate has remained below 4% for over two years, despite the sharpest rate hikes in decades, and is only 0.4% above the 3.4% low of the last 60 years reached in September 1968. The Consumer Price Report on April 10 will help clarify the inflation picture, but it has steadily fallen from pandemic highs. In this environment, the Fed can afford to wait to cut rates.