MNI BRIEF: Fed's Barkin Sees Encouraging Job Market Continuing

The December U.S. jobs report adds to evidence that labor supply and demand growth remain both modest and balanced, Federal Reserve Bank of Richmond President Tom Barkin said Friday. 

"This fine balance between a modest job growth environment with a modest labor supply environment seems to be continuing and that was encouraging," he told reporters at a Maryland bankers conference. "Some of it is uncertainty, a lot of it is productivity. But it’s hard to find businesses outside of the AI ecosystem or health care that are talking about hiring, and that’s very consistent with what I saw today." 

A tick lower in the unemployment rate to 4.4% in the month was the bigger news and welcome, he added. 

The Fed's rate cuts over the past 16 months or so were intended to "provide some offset to the economy." As inflation has made significant progress, the Fed is also taking rates back to the range of normal, he said. Risks remain on both sides of the Fed's mandate, he said, adding the December rate cut was a "close call." 

Outsized productivity growth may account for the gap between weaker hiring and healthy demand growth, he said, noting third-quarter labor productivity jumped to a 4.9% annualized rate. 

"Going forward, businesses are going to have to make a call as to whether they can sustain the productivity, and they're going to need to hire to meet demand. That’s the upside case. The downside is they're convinced that demand will falter, in which case you reduce jobs equivalently." (See: MNI POLICY: Fed Warms To Productivity Step-Up, Rethinks Risks)