Are rate cuts suddenly on hold?

The U.S Labor Department report January 30 revealed that job openings rose more than expected in December. Does this mean rate cuts are on hold?

New stats from the U.S. Labor Department today showed job openings rose 101,000 to $9.026. That surprised many and makes some think rate cuts will be a difficult sell. It’s also historic, as the unemployment rate has stayed below four per cent for almost two years, something that hasn’t happened since the 1960s. Some think it could throw a monkey-wrench into the rate cuts the market may already be pricing in.

“Persistent demand for workers, while positive for continued economic growth, may throw a wrench into efforts to cool inflation early in 2024,” Ben Ayers, senior economist at Nationwide in Ohio told Reuters. “This is again a sign of too much of a good thing, which should lead to a later-than-hoped shift to monetary policy easing.”

In an update January 30, BMO Senior Economist Jennifer Lee said the news is good and bad.

“The two big items to focus on: 1) jobs and 2) inflation expectations,” she said. “Job openings actually rose in December (Side note: Anyone remember how exciting it was when the number of openings cracked 10 mln? And they stayed there for nearly two years!) We’re back over the 9 million mark, which is a 3-month high… and the bulk of the gains were in the private sector. So the good news is that there are options out there… if one is still unemployed or is looking for extra work. The bad news is that it means that the consumer could spend more and that’s not what the Fed wants right now.”

Lee says this development does make The Fed’s job more difficult.

“Show of hands! Anyone still finding jobs plentiful these days? How about hard to get?” More respondents found jobs plentiful and fewer found those jobs difficult to come by. Let’s go back to the opening segment here …. the good news is that Americans are confident about their job situation; but, the bad news is that means the U.S. economy could stay resilient for longer. Not a bad thing in the grand scheme of things, but bad for Fed Chair Powell. Also, note this suggest that the January jobless rate could fall (we will find out on Friday).

Bottom line, the economist says: “It will be challenging to push for earlier rate cuts in this environment.”