Markets are tense over how the Federal Reserve (Fed) will react to unexpectedly robust U.S. job market data for Dec.
On the last business day of Dec., the number of job openings amounted to 11 million, according to the U.S. Bureau of Labor Statistics. Although vacancies increased in retail trade and construction, they notably declined in the information sector, which includes many tech jobs.
The five-month high was the largest increase since July 2021, and exceeded all estimates, which had a median projection of 10.3 million. In such a market, where demand far outstrips supply, a risk of sustaining upward pressure on wages could continue fueling inflation.
Consequently, the consummate appetite for labor demonstrated by the unexpected increase in open positions could affect the Fed later today.
Anticipation Before Fed Meeting
Markets had a relatively typical reaction to unfavorable news, with the S&P 500 falling and Treasury yields rising. This was also the case for crypto markets, Bitcoin and Ethereum of which fell less than 1%. However, one reason for the muted response is that markets are rather anticipating remarks from Fed Chair Jerome Powell.
The Federal Reserve will hold its first meeting of the year later today. Markets widely expect the monetary authority will continue to slow the pace of its interest rate hikes. From four consecutive 0.75-percentage-point raises, down to 0.5% in Dec., a rise of 0.25% is now expected. Although this is still widely anticipated, negative market sentiment reflects the heightened tension.
Economists’ Recession Fears
One metric Fed officials have been concentrating on has been the ratio of openings to unemployed people. Around 1.2 before the pandemic, it rose to 1.9 in Dec. from 1.7 a month earlier.
The extraordinarily high number of job openings is one reason the Fed believes its aggressive policies can appropriately address inflation without causing high unemployment. Unfortunately, many economists expect Fed tightening to push the economy into recession over the coming year.
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