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Fed Officials May Be Encouraged by the Latest Labor Data


Federal Reserve officials are more likely to see the August jobs numbers as an indication their policies are working — though not that their job is completed.

Policymakers are closely parsing labor market data as they fight to work out how much underlying momentum the economy has and the way much they need to lift rates of interest to restrain growth and lower inflation.

Fed officials have raised rates to a spread of two.25 to 2.5 percent in July from near zero in March, but they’re still waiting for signs that those higher borrowing costs are cooling consumer spending and business expansions, lowering demand and giving supply a probability to catch up. Thus far, the evidence of a serious slowdown has been spotty.

In that context, the info released on Friday was encouraging. Job growth slowed, but not by a lot that it suggested a recession was imminent. The unemployment rate rose, but mostly because more people joined the labor force, which should make it easier for corporations to fill open positions. Wage growth slowed.

“Overall there’s quite a bit to love in case you’re a Fed official without delay,” said Sarah House, an economist at Wells Fargo. “Hiring stays robust but on a more sustainable basis. Yes, unemployment was up, but it surely was for all the precise reasons. We saw a surge in job seekers.”

Still, Ms. House said, one good report is not going to persuade the Fed that it’s time to back off its efforts to tame inflation.

Central bankers have been clear that they’re fastidiously watching data on each employment and inflation — which is showing hopeful, but not yet conclusive, signs of slowing — as they determine how quickly to lift rates of interest. Fed officials are contemplating a rise of either a half percentage point or three-quarters of some extent at their meeting on Sept. 20-21.

Higher rates of interest work to counter inflation partly by weighing on the labor market. As businesses face steeper borrowing costs, they grow less and in the reduction of on hiring. As job opportunities dwindle, competition for employees eases and wage growth slows — reining in consumer spending. As demand wanes, corporations change into less in a position to raise prices, lowering inflation.

That process can push unemployment up and prove painful as people lose or struggle to seek out jobs. But Fed officials have argued that getting inflation under control is critical — and that delaying the tough selections now would only make the situation worse down the road.

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