US: Labor market remains far too hot for the Fed's liking – Wells Fargo
02.12.2022, 16:12

US: Labor market remains far too hot for the Fed's liking – Wells Fargo

The US Dollar trimmed weekly losses following the release of the US employment report that showed better-than-expected numbers. Analysts at Wells Fargo, point out that employment gains were fairly broad-based across industries, including in cyclically-sensitive sectors like construction and manufacturing. They argue the labor market remains far too hot for the Fed's liking, and it will take much slower growth in employment and wages to return inflation to the central bank's 2% target on a sustained basis.

Key Quotes: 

“Nonfarm payrolls once again blew past expectations, increasing by 263K in November. Employment gains were fairly broad-based across industries, including in cyclically-sensitive sectors like construction and manufacturing. Average hourly earnings growth was much stronger than anticipated, and new labor supply that might help put water on the fire was once again not forthcoming: the labor force participation rate fell by a tenth and is now below where it was in January.”

“Payroll growth of 263K is still too fast at this stage of the business cycle, and wage growth of ~5% is 1-1/2 percentage points above what would be consistent with the Fed's inflation target. A downshift to a 50 bps rate hike in December seems likely, but the Fed still has a ways to go in its tightening cycle.”
 

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