Cooling US jobs market paves the way for rates cut

A COOLING labour market in the US is paving the way for the Federal Reserve to cut interest rates as early as the spring as data suggested wage pressures are easing.

There were 8.79m job openings in November, down from 8.85m in October and 60,000 fewer than analysts had expected, data from the US Bureau of Labor Statistics showed.

This was 3.21m fewer than the peak of the US labour shortages in March 2022, when new vacancies hit 12m. Nancy Vanden Houten, lead US economist at Oxford Economics, said the data, alongside signs of rapidly falling inflation, “should allow the Fed to bring its first rate cut forward to May or June”.

Crucially, the number of people quitting their jobs slumped to 2.4pc of total employment, the lowest level since September 2020 and well below its pre-pandemic peak. This shows people are becoming much more unwilling to leave their jobs.

Paul Ashworth, chief North America economist at Capital Economics, said: “This matters because [ job] quits is the single best leading indicator of wage growth and now points to a slowdown in the latter to less than 3.5pc.”

This would be a substantial drop from the 4pc growth rate recorded in November.

Mr Ashworth added: “The Fed might need to pivot to worrying about price inflation coming in too low.”

The job hires rate fell to 1.5pc, the lowest level since early 2014, excluding April 2020 during the first wave of the pandemic. The figures came after the US consumer prices index cooled to a five-month low of 3.1pc in November, getting closer to the Fed’s target rate of 2pc. The Job Openings and Labor Turnover Survey (Jolts) is the first dataset of the year which matters for the interest rate outlook.

It comes ahead of jobless claims data today and non-farm payrolls data tomorrow, which investors will be watching closely for signs of easing inflationary pressures.

In December, the Federal Reserve opted to hold interest rates between 5.25pc and 5.5pc and signalled that it expected to make three rate cuts this year. Markets have priced in the Fed’s first rate cut in March this year.

But there are still major headwinds. Oil prices jumped again yesterday after Libya started shutting down its largest oilfield. The price of Brent crude rose by more than 3pc to rise past $78 per barrel before settling at more than $77.