U.S. jobs report shows Fed tightening still a work in progress

After a drop in job vacancies, a dip in rental costs and signs of growing consumer caution seemed to show the Federal Reserve strict monetary medicine beginning to kick in, a strong September jobs report has left policymakers waiting for clearer signs their efforts to cool the economy are working.

The Labor Departments report, which showed a gain of more than a quarter of a million jobs, a drop in the unemployment rate, and continued healthy wage growth, points to a job market U.S. central bank officials will likely continue to see as out of line with declining inflation.

In projections issued at the end of the Sept. 20 21 policy meeting, Fed officials at the median expected the unemployment rate to rise to 3.8percent by the end of the year and to 4.4percent by the end of 2023 as the pain of a slowing economy took hold. The median Fed policymaker projection considers a 4percent unemployment rate roughly consistent with stable inflation.

The unemployment rate in September, however, dropped to 3.5percent from 3.7percent in August, partly due to a decline in the number of people looking for work. That dealt a separate blow to the Fed and its hopes that the supply of willing workers would improve and help reduce the pressure on businesses to raise wages.

Though month to month changes in the employment report are often within the statistical margin of error for the survey used to prepare it, Vanguard economists said the labor force data in September indicated that a large August jump in the size of the workforce was an apparent head fake.

Average hourly earnings grew at a 5 percent pace on an annualized basis last month, slower than the pandemic peak but still higher than Fed officials have said they feel is in line with their 2percent inflation target.