In August, the weak US employment report made the Federal Reserve’s (Fed) clear path to reduce debt purchases more complicated. This data was lower than the Fed’s most hawkish members expected, indicating that the new crown virus Delta variant has been It began to affect the economic recovery.
Fed policymakers who have argued most firmly that the central bank should reduce its $120 billion monthly asset purchases connected that policy adjustment to an August employment report that continued the average gains of 876,000 new jobs added from May to July. Other officials believe that economic performance has become increasingly estranged from the pandemic and can withstand the current surge in cases.
The August non-agricultural employment report released on Friday showed that 235,000 new jobs were added- the lowest increase this year. This poses a challenge to some of the Fed’s core claims because the surge in new corona cases seems to have hit companies like restaurants, which were the first to bear the brunt of the impact of the pandemic last year. The much-watched labor participation rate and the employment progress data for women and blacks have hardly changed, which is a blow to the Fed’s expectations of a “comprehensive and inclusive” recovery in the labour market.
“For families, employers and the Federal Reserve, September and October will be stressful months,” Bernard Baumohl of The Economic Outlook Group wrote in a report. The August report is far from clearing the way for the start of this process. Instead, the Fed still faces the risk of a new promise of a full recovery in the labor market and the traditional promise of keeping inflation under control, which is two opposing options.
The current inflation rate in the United States is about twice the Fed’s 2% target. Policymakers expect this situation will ease on its own, allowing them time to continue employment growth and achieve full employment before interest rates need to be raised to slow the pace of price increases. Now, weak employment growth challenges this assumption and the Fed’s belief that the new outbreak will not undermine the continued economic recovery.
If the labor market challenges had been attributed to supply issues, like unemployment insurance or child care issues limiting people from working. In that case, August added weak demand in some industries that defined the economic downturn last year. The economic downturn is mainly caused by weak demand. Before this happens and job growth rebounds, any change in the Fed’s policy may be deadlocked. “Today’s report should give the doves on the Federal Reserve’s board…some fodder for postponing,” announcement of plans to reduce, or “taper,” the bond-buying, said Rick Rieder, BlackRock’s chief investment officer for global fixed income.