Job gains remain rapid, unemployment is near a historic low and wage gains are robust nearly two years into the Federal Reserve’s campaign to cool the economy with higher interest rates — an outcome that has surprised policymakers and economic forecasters alike.
At this time last year, Fed officials were predicting that unemployment would have spiked to 4.6 percent by now. Instead, it stands at 3.7 percent.
Central bankers have for months said that they were hearing anecdotal evidence that the job market had begun to slow down: The Fed’s recent Beige Book summaries of anecdotal reports from around the country have suggested that hiring was slight or even flat in parts of the country. But while hiring cooled somewhat last year, no big fissures have shown through to the actual data.
In fact, there are signs that the labor market is still very solid — something Jerome H. Powell, the Fed chair, acknowledged this week.
“We’ve had a very strong labor market, and we’ve had inflation coming down,” Mr. Powell said. “So I think whereas a year ago, we were thinking that we needed to see some softening in the economy, that hasn’t been the case. We look at stronger growth — we don’t look at it as a problem.”
Mr. Powell and his colleagues have suggested that the labor market has come back into balance as the supply of workers has recovered, something that has been helped along by a rebound in immigration and a recent jump in labor force participation. The number of job openings in the economy has slowly nudged down.
But few if any economists expected job gains to remain this robust at a time when higher interest rates were expected to meaningfully weigh down the economy. In fact, many forecasters were predicting an outright recession early last year.
The question for the Fed is what it means if the job market not only fails to slow down as anticipated, but actually accelerates again. While one month of data does not make a trend, officials are likely to keep an eye on strong hiring and wage growth.
Mr. Powell said this week that robust growth in and of itself would not worry the Fed — or necessarily prevent them from lowering interest rates this year — so long as inflation continued to come down. But central bankers could become more wary if solid wage gains and a booming economy help to keep consumers spending so much that it gives companies the wherewithal to keep raising prices.
“If there was a real concern that we were getting a re-acceleration, it might get them to pause a little bit,” said Kathy Bostjancic, the chief economist at Nationwide. But for now, “they’re more apt now to respond to a weakening in the labor market than to continued strength.”