Commentary on Political Economy

Friday 5 April 2024



Strong Jobs Report Still Leaves Wiggle Room for the Fed, but Not Much

April 5, 2024 10:22 am ET

Job seekers made connections recently at an employment fair in Long Beach, Calif., for aerospace workers. Photo: Brittany Murray/MediaNews Group/Long Beach Press-Telegram/Getty Images

The U.S. economy is rapidly adding jobs, but not in a very inflationary way. That was enough on Friday to keep hopes alive for a June rate cut, but just barely. 

The unemployment rate slipped to 3.8%, in line with expectations. Photo: Rich Pedroncelli/AP

Employment rose by 303,000 jobs in March, according to the Labor Department, up from 270,000 jobs in February and much higher than expectations for 200,000. Stalwart sectors such as healthcare and government kept adding jobs, but so did more cyclical sectors like construction, retail trade and hospitality and leisure. 

Such strong numbers won’t help the Federal Reserve build a case for reducing interest rates soon, but there were also things in the report for inflation doves to point to. 

For one thing, growth in average hourly earnings slowed to a year-over-year pace of 4.1% in March from 4.3% in February, the slowest since June of 2021. Two years ago it was running at 5.9%. This suggests that employers are able to keep taking people on at a rapid clip without overheating the labor market, making it possible that inflation could keep coming down even as the economy remains robust. 


How could that be? One theory is that stepped-up immigration is adding to the supply of workers, keeping wages in check. Another is that more people are coming off the sidelines and back into the labor market, perhaps encouraged by things like more flexible working arrangements. Friday’s batch of data lent additional support to the latter theory: The workforce participation rate rose to 62.7% from 62.5% the prior month, its highest level since November.

All in all, the employment data on Friday don’t necessarily mean that inflation is a bigger risk than previously thought. But at the very least, they indicate that the economy is hardly in dire need of lower rates. 

Traders in the futures market are now pricing in a 54% chance of a rate cut in June, compared with 59% a day ago, according to the CME Group FedWatch Tool. The likelihood of at least three total cuts by the end of the year, in line with the Fed’s latest projections, fell to 56% from 66%. 

This means the March Consumer Price Index reading, due next Wednesday, will likely prove decisive. If it shows renewed momentum in falling inflation, the Fed’s path still looks open. But if the trend in January and February of sticky, slowing disinflation persists for another month, a reassessment will be in order. As this week’s stock-market selloffs indicate, that could be painful for investors. 

Write to Aaron Back at


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Inflation and the Economy

Analysis from The Wall Street Journal, selected by the editors

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