Nexus Between US Jobs, Interest Rates to Stay Tight - Federal Reserve Policy-Makers

WASHINGTON (Sputnik) - With a day to the September US jobs report that could decide the quantum for the Federal Reserve’s next rate hike, officials of the central bank said they expected the nexus between employment and monetary policy to stay tight.

"I suspect that unemployment will creep up," Chicago Fed President Charles Evans said ahead of Friday’s release of the Labor Department’s non-farm payrolls report for September.

Economists expect the report to say that 250,000 new jobs were created last month, with the unemployment rate holding steady at 3.7% and wage growth remaining elevated to pose problems for the Fed’s mission of fighting inflation at four-decade highs.

"Labor market is still good, and will be more challenging with higher interest rates," Evans predicted.

Lisa D. Cook, one of the Fed’s governors, said the central bank was studying daily economic data to determine where rates should be. "We’re willing to alter course as the data evolves," she said. "For right now, 2% is the Fed's inflation target and that’s what it is striving to hit."

The Fed’s preferred inflation indicator, the Personal Consumption Expenditures Index, grew 6.2% during the year to August, versus 6.3% in the 12 months to July.

Economists polled by US media had expected the so-called PCE Index to expand by just 6% during the year to August.

On a monthly basis, the PCE Index actually grew more in August than in July, rising 0.4% from a previous 0.1%. Economists had expected a monthly growth of just 0.2% in August.

The PCE reading showed the Fed had made little progress in its fight against inflation despite sharp drops in gasoline prices over the past three months. The central bank has warned of late that it will not let up on rate hikes it had embarked on since March to fight inflation.

To fight inflation, the Fed has raised interest rates by 300 points this year, from an original base of just 25 points in February. The central bank’s chairman Jerome Powell said last week that US rate hikes will have some way to go before the Fed considers a pause or reduction, with the likelihood of another 125 basis points being added before the end of this year.

Evans affirmed that target on Thursday. "The next meeting will decide whether to use 50 or 75 basis points," he said, referring to the Nov. 1-2 meeting of the FOMC, the policy-making Federal Open Market Committee of the Fed. The FOMC’s final meeting for the year will be on December 13-14.

If rates get to between 4.0% and 4.25% by the year-end, they could continue creeping up to reach between 4.5% and 4.75% by spring of 2023, Evans said.