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Good News on Jobs May Mean Bad News Later as Hiring Spree Defies Fed


America’s job market is remarkably strong, a report on Friday made clear, with unemployment at the lowest rate in half a century, wages rising fast and companies hiring at a breakneck pace.

But the good news now could become a problem for President Biden later.

Mr. Biden and his aides pointed to the hiring spree as evidence that United States is not in a recession and celebrated the report, which showed that employers in the United States added 528,000 jobs in July and that pay picked up by 5.2 percent from a year earlier. But the still-blistering pace of hiring and wage growth means the Federal Reserve may need to act more decisively to restrain the economy as it seeks to wrestle inflation under control.

Fed officials have been waiting for signs that the economy, and particularly the job market, is slowing. They hope that employers’ voracious need for workers will come into balance with the supply of available applicants, because that would take pressure off wages, in turn paving the way for businesses like restaurants, hotels and retailers to temper their price increases.

The moderation has remained elusive, and that could keep central bankers raising interest rates rapidly in an effort to cool down the economy and restrain the fastest inflation in four decades. As the Fed adjusts policy aggressively, it could increase the risk that the economy tips into a recession, instead of slowing gently into the so-called soft landing that central bankers have been trying to engineer.

“We’re very unlikely to be falling into a recession in the near term,” said Michael Gapen, head of U.S. economics research at Bank of America. “But I’d also say that numbers like this raise the risk of a sharper landing farther down the road.”

Interest rates are a blunt tool, and historically, big Fed adjustments have often set off recessions. Stock prices fell after Friday’s release, a sign that investors are worried that the new figures increased the odds of a bad economic outcome down the line.

Even as investors zeroed in on the risks, the White House greeted the jobs data as good news and a clear sign that the economy is not in a recession even though gross domestic product growth has faltered this year.

“From the president’s perspective, a strong jobs report is always extremely welcome,” Jared Bernstein, a member of the White House Council of Economic Advisers, said in an interview. “And this is a very strong jobs report.”

Still, the report appeared to undermine the administration’s view of where the economy is headed. Mr. Biden and White House officials have been making the case for months that job growth would soon slow. They said that deceleration would be a welcome sign of the economy’s transition to more sustainable growth with lower inflation.

The lack of such a slowdown could be a sign of more stubborn inflation than administration economists had hoped, though White House officials offered no hint Friday that they were worried about it.

“We think it’s good news for the American people,” the White House press secretary, Karine Jean-Pierre, told reporters in a briefing. “We think we’re still heading into a transition to more steady and stable growth.”

The Fed, too, had been counting on a cool-down. Before July’s employment report, a host of other data points had suggested that the job market was decelerating: Wage growth had been moderating fairly steadily; job openings, while still elevated, had been declining; and unemployment insurance filings, while low, had been edging higher.

The Fed had welcomed that development — but the new figures called the moderation into question. Average hourly earnings have steadily risen since April on a monthly basis, and Friday’s report capped a streak of hiring that means the job market has now returned to its prepandemic size.

“Reports like this emphasize just how much more the Fed needs to do to bring inflation down,” said Blerina Uruci, a U.S. economist at T. Rowe Price. “The labor market remains very hot.”

Central bankers have raised borrowing costs three-quarters of a percentage point at each of their last two meetings, an unusually rapid pace. Officials had suggested that they might slow down at their meeting in September, lifting rates by half a point — but that forecast hinged partly on their expectation that the economy would be cooling markedly.

Instead, “I think this report makes three-quarters of a point the base case,” said Omair Sharif, founder of Inflation Insights, a research firm. “The labor market is still firing on all…



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