Fed Officials Care Most To How Restrictive Policy Needs To Be, For How Long

Loretta J. Mester, President of the Federal Reserve Bank of Cleveland, stated on Friday, following the NFP report, that the job market remains strong despite signs of rebalancing. She downplayed the increase in the Unemployment Rate to 3.8%, stating that this level “is still low.”

Speaking at an event in Germany, Mester mentioned that the main debate at the Fed is how restrictive policy needs to be and for how long. She explained that the Fed must balance risks when determining its policy rate.


Mester recognised that there has been progress, but she pointed out that inflation is still high. The US Jobs Report and the Institute for Supply Management Manufacturing Index together show that any attempt to undermine the US dollar has been a waste of time, according to the dollar.

The real increase in Nonfarm Payroll Changes and the unexpected increase in Prices Paid in the ISM Manufacturing Index both indicate that labour and inflation conditions are still quite tight. Bets on a weaker US Dollar throughout this week are being forced out as the Greenback strengthened against most of its main peers towards the European closing bell.

The Jobs report provided traders with an excellent summary of the preceding datapoints observed this week: Nonfarm Payrolls Change increased by 187k, surpassing even last month’s print, which was reduced from 187k to 157k. Therefore, there were more employment added in August. It appears that the labour market is still doing extremely well despite these elevated interest rates.

The likelihood of another rate increase by the Fed, however, is beginning to dim as the average hourly earnings have fallen from 0.4% to 0.2% month-over-month, suggesting that firms are having to pay less to hire employees and perhaps reducing inflationary pressures.