(Bloomberg) — Mohamed El-Erian says the Federal Reserve must renew its focus on fighting rising prices after September’s surprisingly strong jobs report served as a reminder that “inflation is not dead.”
Most read from Bloomberg
His comments came after Friday’s data blew away estimates, leading to a rise in U.S. stock and bond yields. Nonfarm payrolls rose by 254,000 in September, the most in six months.
“Not only is this a solid labor market, but if you take these numbers at face value, it is a strong labor market late in the cycle,” El-Erian, the president of Queens’ College, Cambridge, told Bloomberg Television on Friday.
“For the Fed, this means resisting market pressure much harder to put you in the common mandate box,” he added. “Enough talk about, ‘The Fed should only worry about maximum employment.’”
Investors quickly cut their bets on sharper policy easing from the Fed in November and December after the release. The data also showed that the unemployment rate unexpectedly fell to 4.1%, while annual wage growth picked up to 4%.
Swap traders are now pricing in just over 50 basis points of US central bank rate cuts before the end of the year, down from more than 60 on Thursday. They have become so skeptical about further easing that they are no longer fully pricing in a quarter-point increase in November. The interest rate on the policy-sensitive two-year government bonds rose enormously after the publication and was more than 18 basis points higher at 3.89%.
“For markets, this means a pushback on overly aggressive expectations of Fed rate cuts,” said El-Erian, also a Bloomberg Opinion columnist. “This will bring the market closer to what is likely.”
Fed official Austan Goolsbee had a different view after the data. He said employment data supported a case for lower interest rates in coming months, while acknowledging that the central bank’s focus must remain on longer-term trends in inflation and the labor market.
“I’m thrilled that we got a fantastic number, but let’s not lose sight of the longer thread,” Goolsbee, president of the Federal Reserve Bank of Chicago, told Bloomberg Television.
“A large majority of the committee believes that inflation conditions will improve, that we will move closer to the 2% target, that the unemployment rate will stabilize at full employment, and that the figures will continue to rise. will decline a lot over the next year, 12 to 18 months,” Goolsbee said.
–With help from Jonathan Ferro, Lisa Abramowicz, Annmarie Hordern, and Michael McKee.
(Updates market prices, adds comment from Goolsbee.)
Most read from Bloomberg Businessweek
©2024 BloombergLP
