336,000 New Jobs in September, Unemployment Holds at 3.8%

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With these September figures, the big question for the Federal Reserve is: Where is the “softening” in the labor market that will ease the pressure on wages? We are now in the 33rdmonth of continuous job growth and the increasing interest rates from the Fed was supposed to reduce job opportunities and hence reduced wage pressure, hence lower inflation.

We did get the lower inflation, but in spite of the Fed action, not because of it. The Fed set the brakes on the housing market, but that slowdown was offset by increases in other markets. Some of the underlying causes of inflation, like supply chain issues, broke free which lowered costs, and the pent-up demand caused a lot of spending that added jobs. I think the bipartisan infrastructure bill also added to significant economic stimulus. The role of the Fed, in my opinion, was minimal.

Certainly, the actions of the Fed had an effect, and I think that inflation would not have come down as quickly without the “slowing down” effect of increasing interest rates. So, the question now becomes should the Fed go further in trying to reach their inflation goal of 2%?

Argument for a Pause

In June of 2022 inflation was at 9.1 percent and now it is at 3.7. However, it should be noted that there was a significant spike in August from 3.2 to 3.7%. In fact the inflation rate had continued to fall every single month from June 22 to June 23, but started to increase in July 23 to 3.2 and then to 3.7 in August, where it remained in September.

This fact alone might argue for the Fed to continue its interest rate increases, except that everything else seems to be going well and inflation has been cut by more than half. The Bond market has greatly improved, CD rates and general savings are good, the stock market, although it has taken hits in the last year, is still quite healthy.

The only soft spot continues to be housing with 30-year fixed rate mortgages now averaging 8%. Affordable housing stocks continue to be very limited and higher interest rates do not help. Higher interest rates have also caused some difficulties with small business but not to the extent that they have curtailed much new hiring. Big banks have made larger profits with the higher interest rates, but many are concerned about how long this will last.

Recession worries have been reduced, but many still see a weaker US economy in 2024.

Consumer Confidence took another hit in September with a continuing decline in many areas. There seems to be a general consensus between banking, professional economists, and consumers that in spite of a lot of good current news, and that a bad recession may well be avoided, the outlook for 2024 is generally for a weaker economy.

Many consumers now believe they will continue to be struggling with higher prices, even if future increases get under control. They are still left with the higher prices that have already been established during the last few years.  Even the wage increases of the last 18 months were soon matched or outpaced by price increases.

Bottom Line?

In their Sept 20thmeeting, the Federal Reserve not only took a pass on another interest rate increase, but also indicated that they thought they could do the same for the balance of 2023.  They also talked about a “soft landing” in 2024 without a recession (even a mild one) that most of the Fed group previously expected just 3 months earlier.

Next year, the group added, may not call for a reduction of interest rates, which would be called for if a recession actually happened, but will not be necessary if inflation reduction keeps trending as it has been.  The recent spike, the Fed does not believe, will reverse the very strong, yearlong trend line of June 22-June 23.

Although this great news, if confirmed over the next couple of months, would certainly help consumer confidence levels, it would also be wonderful if food and gasoline prices improved as well. Could happen.

As Always, Stay Safe and Pray for Ukraine (and Russia, Israel, and Gaza)