The 'coveted soft landing' is here, Biden's top labor official says — and it could set Americans up for an interest rate cut in September
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- The US economy is not in a recession, even with the slowing labor market.
- "If this isn't a soft landing, I don't know what is," Julie Su, acting labor secretary, told BI.
- It could give the Fed the confidence it needs to cut interest rates in September.
Long-awaited financial relief could reach Americans sooner than they might think.
Since last fall, the Federal Reserve has held interest rates steady as it continued fighting to get inflation closer to its 2% target. Fed Chair Jerome Powell has repeatedly said that it'll take more positive economic data for the central bank to feel confident enough to cut interest rates, and the latest data could help that case.
On Friday, the Bureau of Labor Statistics found that the US added 206,000 jobs in June — above the 191,000 forecast — and the unemployment rate rose to 4.1% in June, up from 4.0% in May. That higher unemployment rate signals that more Americans are likely looking for work, as the labor force participation rate ticked slightly up, even as wages moderate.
At the same time, payroll estimates for both April and May were revised down, indicating that while the labor market is still going strong, it's not as on fire as the Fed may have feared.
On top of that, inflation has started to moderate over the course of the year. The latest Consumer Price Index, which measures inflation, found that inflation rose 3.3% year over year in May, a slight decrease from April's 3.4% reading.
The continuation of the strong but slowing jobs market is a signal that the Fed has managed to fight inflation while avoiding a severe economic downturn, a combination known as a soft landing, Julie Su, the acting secretary of labor, told Business Insider. Su said that, even with revisions, the three-month average is still 177,000 jobs added a month.
"If this isn't a soft landing, I don't know what is," Su said. "From the job creation to the unemployment rate, to the labor force participation to wages and the sense of security that I hear from working people when I travel the country."
"All of those together, I think this is the coveted soft landing," she added. "And even some of the numbers are demonstrating what a path to real steady stable growth looks like."
Su also noted that the country has seen broad-based growth across sectors — another sign of economic strength.
Alongside the Federal Open Market Committee's announcement to hold interest rates steady during its most recent meeting in June, the Summary of Economic Projections penciled in just one interest rate cut for 2024. However, Powell said during the June press conference that there was still time to change that projection — and that a rate cut in September is "plausible."
"It's going to be the totality of the data, what's happening in the labor market, what's happening with the balance of risks, what's happening with the forecast, what's happening with growth," he said. "You look at all of that, and you ask, 'Are we confident?'"
CME FedWatch, which estimates market assessments of the probability of interest rate cuts, projects a 93% chance interest rates will remain steady in July and a 72% chance rates will be cut by September.
Some economists said the latest data should give the Fed that confidence. Jan Hatzius, Goldman Sachs' chief economist, said during a Friday CNBC interview that the jobs report will "reassure Fed officials that the labor market has continued to rebalance."
"This does support the idea that they will cut relatively soon, and we continue to think September is the most likely," Hatzius said.
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