The unemployment rate has tumbled more than the Federal Reserve and many forecasters had projected, handing President Joe Biden some good economic news.
The unemployment rate fell two-tenths of a percentage point to 3.6% in March, a more aggressive drop than expected. Joblessness is now at the lowest level since right before the COVID-19 pandemic struck, when it was resting at about 3.5%. The unemployment rate has ticked down nearly every month over the last two years.
The unemployment rate is already as low as Fed officials expected it to be at the end of 2022. In March, Fed members projected that the rate would be 3.5% by the end of the year. Similarly, the economic projections in Biden’s budget request, which were finalized in November, showed the unemployment rate only falling to 3.9% this year.
The fact that unemployment is falling quickly is good news for Biden. For the Fed, though, it is likely to be taken as another sign that the economy is running hot and in danger of seeing inflation spike further. Already, inflation is at the highest level in 40 years, in the Fed’s preferred gauge. Soaring prices have hurt Biden’s approval and undercut support for his proposed new taxes and spending. Friday’s news will probably lend greater urgency to the Fed’s plans to raise its interest rate target to slow spending and curb inflation.
Another sign from Friday’s report that the labor market is tightening is the increase in the number of working-age people with jobs. The employment rate for workers aged 25 to 54 is on track to hit its pre-pandemic level this spring.
RISING MORTGAGE RATES COULD BEGIN TO COOL A STILL-HOT HOUSING MARKET
“The overall labor force participation rate didn’t move much last month, but the rate for prime-age workers increased. While some workers, noticeably those 55 years and older, aren’t returning at a rapid pace, the prospects for labor supply are very bright,” said Indeed economic research director Nick Bunker.
The economy added 431,000 jobs in March after two back-to-back months of explosive growth. Monthly job growth has averaged 562,000 jobs over the past three months, a sign that the pandemic that has plagued the country for the past two years is finally starting to be viewed from the country’s rearview mirror.
“Over the course of my presidency, our recovery has now created 7.9 million jobs,” Biden said in remarks after the new numbers were released. “There have been only three months in the past 50 years where the unemployment rate in America is lower than it is now.”
“Our economy has gone from being on the mend to being on the move,” Biden added, while attributing the growth to the Democratic $1.9 trillion coronavirus relief legislation.
Yet the spending has contributed to inflation, which in turn has soured voters on the economy. Consumer prices rose 7.9% for the 12 months ending in February, the hottest pace since 1982.
And the sense among Fed members that dramatic action is needed to lower inflation raises the risk of a “hard landing” — that is, economic damage from accelerated rate hikes.
Chairman Jerome Powell has signaled that the central bank might be forced to hike rates even more aggressively to tame the rising prices. He has left a half-percentage-point hike on the table for May, something that would be akin to two simultaneous rate hikes and a move that hasn’t been taken in more than two decades.
“We will take the necessary steps to ensure a return to price stability,” Powell said during a recent event. “In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Most investors now foresee a half-point hike in May, with the likelihood of the more aggressive rate hike occurring pegged at nearly 75%, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.
