US labor statistics for July, which pointed to significant job growth, sharp declines in unemployment, and higher wages, are likely to move the Fed closer to cutting massive support for the economy.
At the very least, the numbers hit the mark set last week by Fed Board Member Christopher Waller.
Waller said the regulator, in his opinion, could begin to cut support for the economy by October if the employment reports for July and August indicate growth in the number of jobs in the range of 800,000 to 1 million.
The US Labor Department said Friday that nonfarm jobs rose 943,000 last month, beating economists’ forecasts polled by Reuters. Job growth in June and May was also revised upwards. In addition, the unemployment rate in July fell sharply to 5.4%, while wages rose at a steady pace.
US employers have added an average of about 832,000 jobs each month over the past three months. Before Friday’s report, the three-month average was around 567,000.
“The strong labor statistics underscore the rapid recovery in the labor market and increase the chances that the Fed will soon cut back on asset purchases,” said Mike Bell of JP Morgan Asset Management.
However, the more than expected report will not end discussions among Fed officials about the exact timing and pace of phasing out asset purchases or raising interest rates, which some officials say should begin next year. Other members of the central bank’s leadership believe that this will not happen until 2023 or even later.
This state of affairs is primarily due to the uncertainty around the Fed’s benchmark – “significant further progress” in achieving 2 percent inflation and full employment – to curtail incentives.
“Progress will likely not ‘significant’ enough to wind down stimulus, and we do not expect August data to be as strong as of July data,” TD Securities economists said in a client note.
