The figure that changes the picture
Last month’s US employment report clearly beat expectations: according to the Bureau of Labor Statistics, cited by the Korea Herald, payrolls increased by 165,000, more than double economists’ forecasts. The unemployment rate fell to 4.1%.
The data arrived at a time when the push for another Federal Reserve rate hike had lost momentum, amid a massive stock-market selloff after the elections and fears that weaker-than-expected AI-related demand could weigh on the economy. The report brought the rates debate back to center stage: markets now assign roughly an 80% probability to a quarter-point increase at the December 8-9 meeting, up from 67% on Thursday. Traders also expect the next and final hike to come in April instead of June.
The wage and inflation issue
Average hourly earnings grew 3.1% year over year, a slower pace than the 3.7% increase in consumer prices: a gap that erodes the purchasing power of paychecks. This is the point on which policymakers’ argument centers.
Mary Daly, president of the San Francisco Fed, said in a CNBC interview that people report being unable to keep up with inflation and that this must be the number-one priority. “My expectation is that we will need to tighten policy further,” Daly said. She is not a voting member of the monetary policy committee this year but generally expresses views close to those of the majority. She added that, in a volatile world, more information must be gathered and action taken gradually, but that further tightening is likely to be needed.
AI and markets: what remains to be verified
Alberto Musalem, president of the St. Louis Fed, also identified inflation as the main concern raised in talks with businesses in his district, calling it a regressive and distortionary tax. On the AI boom, he observed that for now the industry is fueling inflation through demand for commodities such as copper, and that monetary policy must be calibrated to today’s economy, not the economy five years from now.
Daly read the decline in tech stocks, the fourth consecutive weekly decline despite a rebound on Friday, as a realignment of investors’ expectations for AI-driven growth, not a rejection of the sector. Fitch Ratings analyst Olu Sonola wrote that the solid labor market keeps the Fed focused on inflation and pushes the debate toward a December hike. It remains to be seen how much political turbulence and the AI legislation announced by Democratic leaders will weigh, factors the material does not quantify.
