Federal Reserve Bank of Cleveland President Loretta Mester said the "job market is still strong" following the release of new data showing unemployment unexpectedly increased as the labor market continued to show signs of cooling.
In August, the unemployment rate rose to 3.8%, up from 3.5% and the highest since February 2022. Economists had expected unemployment to remain unchanged at 3.5%.
The US economy added 187,000 jobs in August. Economists surveyed by Bloomberg had expected the economy would add 170,000.
The numbers are not expected to radically change the thinking of most Fed officials heading into their next policy meeting later this month. The data likely keeps more rate hikes on the table, but it allows the central bank to move cautiously by possibly pausing in September and raising in November.
Read more: What the latest Fed rate hike plan means for bank accounts, CDs, loans, and credit cards
What helps explain the rise in unemployment is a change in the labor force participation rate, which increased to 62.8%. That was its highest level since February 2020. US acting Labor Secretary Julie Su hailed that jump in an interview with Yahoo Finance on Friday.
"It’s a sign of optimism," she said.
But the Cleveland Fed president, giving a speech in Germany, said the 3.8% unemployment rate was still "low" and inflation "remains too high."
"In the labor market, some progress is being made in bringing demand and supply into better balance, but the job market is still strong," Mester said, adding "job growth has slowed and job openings are down, but the unemployment rate is low, at 3.8%."
Any future decisions from the Fed, Mester said Friday, "will require close monitoring of economic, banking, and financial market developments and using all of that economic reconnaissance to determine whether the economy is evolving in line with the outlook or not."
Last week, Fed Chair Jerome Powell described the labor market's rebalancing as "incomplete." Powell has repeatedly noted that getting inflation back down to the Fed's 2% goal will require "some softening in labor market conditions."
"We expect this labor market rebalancing to continue," Powell said in a speech at the Jackson Hole Economic Symposium. "Evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response."
Since Powell's speech, early signs from other labor-market data have hinted that the US economy may be cooling off after a stronger-than-expected summer.
Wages, a closely watched indicator of how much leverage workers are exerting in the labor market, rose less than expected last month, rising 0.2% on a monthly basis and 4.3% over last year.
Economists expected wages to rise 0.3% over last month and 4.3% over last year. Wages had risen 4.4% over the last year in July.
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September 01, 2023 at 11:08PM
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Fed's Mester: 'Job market is still strong' despite higher unemployment - Yahoo Finance
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