The Fed Is Still Banking on a Labor Market Miracle

An object in motion stays in motion.Is a labor market trend that’s well underway any different?That’s the question looming for officials at the Federal Reserve as they try to pull off a feat that has never really been accomplished before: gently cooling an economy that was experiencing rip-roaring inflation without tanking the job market in the process.So far, the Fed's attempt at a soft landing has worked out better than just about anyone, including central bankers themselves, expected.

Inflation has cooled significantly, with the Consumer Price Index down to 2.5 percent from a peak of 9.1 percent just two years ago.And even with the Fed’s policy interest rate at its highest level in more than two decades, consumer spending has held up and overall growth has continued to chug along.Fed officials are eager to keep it going.

That is why all signals suggest that they will lower interest rates at the conclusion of their meeting on Wednesday — and the only real question is whether they will cut them by a typical quarter of a percentage point or by a half percentage point.They are also likely to forecast that they will lower interest rates further before the end of the year, perhaps predicting that they will cut them by a full point from their current 5.33 percent.But even as the Fed turns an important corner on its fight against inflation, real risks remain.

And those center on the labor market.Unemployment has been slowly, but steadily, rising.Wage growth has been consistently slowing.

Job openings have come down, and hiring rates have come down along with them.And while all of those developments are what the Fed wanted — the point of this exercise was to slow an overheated job market and prevent it from fueling future inflation — central bankers have been clear that they do not want to see it continue.“We do not seek or welcome further cooling in labor market conditions,” Jerome H.

Powell, the Fed chair, said in his latest speech....