Here’s what experts say about Powell’s next step in the big inflation fight

When a strong jobs report comes across the desk of the Federal Reserve’s chairman, it’s normally cause for celebration.

After all, Fed officials have two main duties in their role managing the U.S. central bank—maintain price stability for everything bought and sold in the economy and ensure “maximum employment.”

But these aren’t normal times. And Fed Chair Jerome Powell likely wasn’t pleased with what he saw in November’s better-than-expected jobs report, experts told Fortune.

The U.S. economy added 263,000 jobs last month, and the unemployment rate remained near pre-pandemic lows at 3.7%, the Bureau of Labor Statistics reported Friday.

Wage growth surprised economists as well, rising 0.6% on the month and 5.1% from a year ago.

While these are positive signs of the resilience in the U.S. labor market, the Fed has been laser-focused on fighting inflation by raising interest rates. And November’s jobs report implies Fed officials may have more work to do, as its previous rate hikes have yet to achieve their goal of substantially cooling the economy.

That could be bad news for investors who have been hoping the central bank would pause its interest rate hikes, or even pivot to rate cuts, amid signs inflation peaked in June.

Fortune reached out to chief economists, investment officers, and business leaders to get their views on the latest jobs report and what it means for Powell’s inflation fight and for the stock market.

Here’s what they had to say:

Economists

Julia Pollak, chief economist at ZipRecruiter

“Wage growth came in twice as high as expected, and sent the stock market into a tailspin. The current pace of wage growth is incompatible with the Fed’s inflation target and raised the likelihood that the Fed would keep interest rates elevated for longer.”

Bill Adams, chief economist at Comerica Bank

“In all, the labor market remains tight and wage growth picked up in November. The Fed will see these data as affirming the need for additional interest rate hikes despite signs of a weakening economy from business and consumer surveys.”

Gregory Daco and Lydia Boussour, EY-Parthenon’s chief economist and senior economist

“The labor market is still hot, but winter is coming… Payroll growth has now decelerated from 418,000 jobs per month on average in the first three quarters of the year to 272,000 in the past three months.”

“Our conversations with executives point to a more meaningful deterioration in labor market trends in coming months as companies face weaker sales domestically and abroad, continued cost pressures, and tighter financing conditions. We continue to anticipate a U.S. recession in early 2023.”

Investment officers

Yung-Yu Ma, chief investment strategist at BMO Wealth Management

“The equity market looks set to struggle on the triple whammy of stronger job growth, accelerating wage growth, and reduced labor force participation.”

“Chairman Powell’s speech earlier in the week was interpreted with a dovish lens, but that spin is likely to be reassessed based on the jobs report. The FOMC has a mixture of hawks and doves, and this report certainly gives more ammunition to the hawks.”

Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of global allocation investment

“Today’s much-anticipated jobs report was another indicator of a labor market that is still filled with job openings, which remain well in excess of available labor (in fact, the ratio of job openings to unemployed is at 1.7).”

“Additionally, the unemployment rate remained unchanged and absent signs of greater deterioration in initial and continuing claims for unemployment insurance, we believe the unemployment figure will remain in a range for now.”

“We think much of the economic data being released of late, when coupled with the recently better inflation data is providing an ample backdrop for the Fed to moderate rate hiking and eventually get to a pause.”

“The Fed’s desire to slow down its rate hikes, but then to keep rates high/restrictive for a while to let the policy ‘marinate’ through the system strikes us as a very prudent path. This week witnessed the markets applauding such a direction of travel and today’s employment report does little to change that.”

Tim Holland, chief investment officer at Orion Advisor Solutions

“The better-than-expected jobs report is good news for the American worker, and bad news, at least short-term, for risk assets as it supports a hawkish monetary policy by the U.S. Federal Reserve.”

“That said, it is worth noting that the jobs report is backward-looking, and that continuing jobless claims have been climbing. There is a good chance the labor market will slow meaningfully in the first half of 2023, forcing the Fed to consider a much more benign policy stance sooner than many expect.”

Charlie Ripley, senior investment strategist for Allianz Investment Management

“Two steps forward, one step back, is the nonlinear path the economic data resembles as the Fed marches towards their goal of squashing inflation. Today’s labor market figures were certainly one step back for the Fed with payrolls of 263K exceeding estimates significantly.”

“Overall, the Fed has made significant steps to slow the economy, but today’s employment report is a sign that they are not out of the woods yet and we expect additional policy tightening measures to continue into next year.”

Business Leaders

Jay Hatfield, CEO of Infrastructure Capital Partners

“The November employment report was strong…in the hospitality, education, health care and government [sectors]. There was no sign of the tech layoffs in the report with information tech adding 19,000 jobs.”

“The key driver of inflation, actually, was excessive money supply… This year the money supply has declined 17%, causing mortgage rates to skyrocket and commodity prices to drop over 30%.”

Matthew Markiewicz, founder of AXS Investments

This story was originally featured on Fortune.com

Source: https://finance.yahoo.com/news/two-steps-forward-one-step-183534640.html