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The lowest unemployment rate since May 1969 might push the Fed to keep the rate increases coming

When the Federal Open Market Committee met on Wednesday, they announced a 25-basis point increase in the benchmark federal funds interest rate range and indicated perhaps it wasn’t done.

Today’s jobs report of 517,000 new positions and 3.4% unemployment rate, the lowest since May 1969, is more fuel for rate hike fodder, which would add pressure to short-term finance rates that are currently uncomfortable (although closer to historical norms than the ultra-low rates the last decade has seen).

But put potential bad news to the side for a moment. A lot of people have been hired. That means more consumers with money to sped to pay for apartments or houses, buy products at retail, stop for a meal at a restaurant, order products that need logistics space.

“From ManpowerGroup’s real time data, we know that employers are actively adding to their workforces, particularly for permanent in-demand skills like registered nurses, software developers, retail workers, and hospitality workers—with these positions comprising more than half of January’s hiring demand,” said Becky Frankiewicz, president and chief commercial officer of ManpowerGroup, in written remarks. “Pandemic paranoia has set in with employers who remember how hard it was to bring back workers. So, it makes sense that despite what we are seeing in headlines regarding layoffs, they are still well below historical norms — with fewer than 1% of the population laid off in December 2022 and an unemployment rate of 1.8% in tech.”

“Even in the tech sector, those that have lost their jobs are reportedly finding new ones within 3 months with a comparable salary,” said National Association of Realtors Chief Economist Lawrence Yun in emailed remarks. “Job gains are always good. Home sales and jobs are related over the long term. That is why the South and the Rocky Mountain regions are seeing more robust home sales gains over the long haul due to faster job growth compared to the rest of the country.”

And it hasn’t seemed to set off an upward spiral of inflation.

“Wage growth is slowing, as is inflation,” writes Claudia Sahm, an economist who formerly worked at the Fed. “All that with low unemployment. What’s not supposed to happen ‘in theory’ appears to be happening in reality. I’ll take it.”

“Ok, I get it,” she adds. “Inflation remains too high, and we are not on a glide path back to normal. But let’s take today to celebrate a win for workers. A job-full recovery means a lot.”

Now, a short return to the less good news.

“Robust job data will raise the prospect of consumer price inflation and the need for a more aggressive monetary policy to rein in inflation,” Yun said. “So just as mortgage rates were trending down towards 6%, there could be a temporary rise. Still, rents are expected to calm down due to active apartment construction. That will help lower the broader consumer price inflation and halt Fed rate increases by summer. Mortgage rates can then go below 6%.”