U.S. unemployment rises as the Fed holds tight on key interest rates
Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building on July 31, 2024, in Washington, D.C. The U.S. unemployment rate climbed to 4.3%, up 0.2% from the month before, after the Fed held short-term interest rates where they are. Some economists believe the central bank has waited too long to cut rates. (Photo by Andrew Harnik/Getty Images)
The unemployment rate climbed to 4.3% in July, up 0.2% from June, the Friday employment report from the Bureau of Labor Statistics shows, alarming some economists who believe the Federal Reserve has waited too long to cut interest rates.
The economy added 114,000 jobs and the number of people who were on temporary layoff rose by 249,000. The economy continued to add jobs in health care, social assistance and construction. According to the Bureau of Labor Statistics, the addition of government jobs slowed down in the past few months and was little changed in July, with the sector’s jobs increasing by 17,000 jobs.
“We’ve seen for several months a bit of softening in the labor market even though it is quite strong by historical standards …,” said Elise Gould, senior economist at the Economic Policy Institute, a left-of-center economic think tank. “There’s been no inflationary pressures coming from the labor market as wage growth continues to decelerate.”
Gould added that she thinks the Fed has waited too long to cut interest rates given what the labor market data shows.
“The softening is a little bit more concerning, and we might be getting there sooner, that sort of cooling, than is necessary,” she said.
The Fed decided not to cut rates during its most recent meeting, it announced on Wednesday. Fed Chair Jerome Powell said the central bank still needs to see more data showing that inflation is dropping enough to justify cutting rates. Despite recent upticks in the unemployment rate, Powell said the labor market was normalizing from a hotter job market. But he indicated that it is possible the Fed will be ready to cut rates by September.
“We’ve seen one quarter of good inflation and we’ve seen the labor market move quite a bit. As I mentioned, I don’t think it needs to cool off any more for us to get the inflation results that are related to the labor market … That time could be in September if the data supported that,” he said.
Powell added that he did not see evidence in the economic data that the economy is “sharply weakening.”
The Fed began raising interest rates in March of 2022 to combat inflation but stopped raising rates in the fall of last year. The Fed said it was still attentive to getting inflation back down to its target of 2% but also needed to meet its dual mandate, which includes maximum employment. The Fed has used higher interest rates as a tool to cool the economy when it has seen it as heating too quickly, but it is often a controversial one because of the risks it presents to the labor market. In June, the inflation measures most valued by the Fed, the personal consumption expenditures price index, rose 0.1% and increased 2.5% over the past 12 months.