In January, US job growth accelerated at an unprecedented rate, while the unemployment rate dropped to an astonishingly low 3.4%, further indication of a firmly tight labor market. Â
While a bright corner in an increasingly grim economic environment, this poses an issue for Federal Reserve officials, who are working hard to battle inflation. Â
The Labor Department’s report revealed that job creation in the past year was stronger than anticipated, leading to speculation that the economy was far from a recession.Â
The Federal Reserve hiked its policy rate on Wednesday by a quarter of a percent to the 4.50%-4.75% range, and signaled continued rising of interest rates. Â
Fed Chair Jerome Powell pointed out that a substantial economic dip or a substantial hike in unemployment wouldn’t be necessary for the U.S. to hit its 2% inflation target. With wages holding steady and inflation going down, experts are starting to concur with this opinion.Â
“If job growth remains strong and labor markets tighten further, this will compromise the Fed’s goal of restoring price stability, leading to several more rate hikes that would ultimately be the economy’s undoing,” said Sal Guatieri, senior economist at BMO Capital Markets.Â
