WASHINGTON–The two to three expected additional moves by the Fed to increase rates in 2018 may not be such a slam dunk after all, according to several economists. The Fed's new chairman, however, seemed to indicate late last week that the Fed will stick with the course it has set.
The release of data for March showing that just 103,000 additional jobs had been created has some analysts rethinking how aggressive the Fed may be this year. Many economists had expected the number of new jobs to be in the range of 185,000.
Although unemployment has remained at 4.1%, its lowest figure since 2000, and wage growth in March was 2.7%, which was in line with expectations, some are worried job growth may continue to slow, especially if Trump Administration gets into a trade war with China.
Dr. Linsey Piegza, chief economist with the brokerage and investment banking firm Stifel Nicolaus & Co, acknowledged, “The strength in February was somewhat anticipated to be carried forward, but now appears to be an anomaly as opposed to an indication of a more robust trend in hiring. Businesses are still putting Americans back to work on a month-to month basis, but the pace remains lackluster with an average gain of 202,000 in Q1 and a six-month pace of 211,000. Without a meaningful tick up in price pressures, the (Fed Open Markets) Committee will find it difficult to justify a second 2017 rate increase."
In its analysis, Stifel added, “From the Fed’s perspective, the focus is on earnings and a gain – even a minimal gain – in wage growth is a step in the right direction. However, parsing through the monthly volatility, the trend in wages remains relatively stagnant. Coupled with a still benign reading on the PCE, the expected ‘move up’ in inflation has yet to be confirmed by the data.”
New Federal Reserve Chairman Jay Powell, however, told the Economic Club of Chicago that the Fed will continue its inflation target of 2% over the next few years, “with further gradual increases in interest rates aimed at sustaining economic expansion and a strong labor market.
Powell aid the Federal Open Markets Committee continues to believe that approach is best as long as the economy continues on its current pace.
“It remains the case that raising rates too slowly would make it necessary for monetary policy to tighten abruptly down the road, which could jeopardize the economic expansion,” Powell said. “But raising rates too quickly would increase the risk that inflation would remain persistently below our 2 percent objective. Our path of gradual rate increases is intended to balance these two risks.”
Powell added, however, “If the outlook changes, so too will monetary policy. Our overarching objective will remain the same: fostering a strong economy for all Americans–one that provides plentiful jobs and low and stable inflation.”