Early signs of easing wage inflation are not enough to spark a Fed ‘pivot’ – Danske Bank

According to analysts at Danske Bank, the Fed is still far away from reaching its inflation target and it will take time until the economy has reached a new equilibrium.

Key Quotes:

“The September Jobs Report illustrated how the US labour market still remains in a relatively strong shape despite the rising global recession fears. Aside from the Jobs Report, alternative labour market indicators have also remained at relatively strong levels in September. The Q3 rebound in real purchasing power appears to have sparked at least a temporary uptick in both consumers' and businesses' optimism.”

“That being said, some clear signs of cooling labour demand and wage inflation are starting to emerge. Most notably, the August JOLTs Job Openings saw a steepest decline since the initial Covid-shock, all the way to the lowest level since June 2021. Turnaround in job openings has historically also predicted easing in wage inflation.”

“While clear signs of a cooling labour market and easing wage growth are a key requirement for Fed to eventually wrap up the ongoing hiking cycle, they are not sufficient on their own as long as the underlying consumer price pressures remain high.”