Tag Archives: Federal Reserve

U.S. job growth slows in July, unemployment rate dips

FILE PHOTO: People wait in line to attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth slowed more than expected in July as employment in the transportation and utilities sectors fell, but a drop in the unemployment rate suggested that the labor market was tightening.

Nonfarm payrolls increased by 157,000 jobs last month, the Labor Department said on Friday. The economy created 59,000 more jobs in May and June than previously reported and needs to generate about 120,000 jobs per month to keep up with growth in the working-age population.

The unemployment rate fell one-tenth of a percentage point to 3.9 percent in July, even as more people entered the labor force in a sign of confidence in their job prospects. The low unemployment rate could allow the Federal Reserve to raise interest rates again in September.

The jobless rate had risen in June from an 18-year low of 3.8 percent in May. Economists polled by Reuters had forecast nonfarm payrolls increasing by 190,000 jobs last month and the unemployment rate falling to 3.9 percent.

The slowdown in hiring last month likely is not the result of trade tensions, which have escalated in recent days, but rather because of a shortage of workers. There are about 6.6 million unfilled jobs in the nation. A survey of small businesses published on Thursday showed a record number in July of establishments reporting that they could not find workers.

According to the NFIB, the vacancies were concentrated in construction, manufacturing and wholesale trade industries. Small businesses said they were also struggling to fill positions that did not require skilled labor.

The Fed’s Beige Book report last month showed a scarcity of labor across a wide range of occupations, including highly skilled engineers, specialized construction and manufacturing workers, information technology professionals and truck drivers.

The shortage of workers is steadily pushing up wages.

Average hourly earnings increased seven cents, or 0.3 percent, in July after gaining 0.1 percent in June. The annual increase in wages was unchanged at 2.7 percent in July.

U.S. stock market futures dipped after the data while the dollar <.DXY> fell against a basket of currencies. Prices of U.S. Treasuries were slightly higher.

TRADE TENSIONS

President Donald Trump’s administration has imposed duties on steel and aluminum imports, provoking retaliation by the United States’ trade partners, including China, Canada, Mexico and the European Union. It has also slapped 25 percent tariffs on $34 billion worth of Chinese imports.

Beijing has fought back by slapping tariffs on U.S. exports to China. On Friday, China’s Commerce Ministry said a new set of proposed import tariffs on $60 billion worth of U.S. goods are rational and restrained and warned that it reserves the right of further countermeasures in the intensifying trade war.

On Wednesday, Trump proposed a higher 25 percent tariff on $200 billion worth of Chinese imports.

Economists have warned that the tit-for-tat import duties, which have unsettled financial markets, could undercut manufacturing through disruptions to the supply chain and put a brake on the strong economic growth.

There have also been concerns that the trade tensions could dampen business confidence and lead companies to shelve spending and hiring plans. But a $1.5 trillion fiscal stimulus, which helped to power the economy to a 4.1 percent annualized growth pace in the second quarter, is assisting the United States in navigating the stormy trade waters.

The Fed left interest rates unchanged on Wednesday while painting an upbeat portrait of both the labor market and economy. The U.S. central bank said “the labor market has continued to strengthen and economic activity has been rising at a strong rate.” It increased borrowing costs in June for the second time this year.

The moderation in employment gains and steady wage growth could ease concerns about the economy overheating, and keep the Fed on a gradual path of monetary policy tightening.

The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding the volatile food and energy components, increased 1.9 percent in June. The core PCE hit the central bank’s 2 percent inflation target in March for the first time since December 2011.

Manufacturing payrolls rose by 37,000 jobs last month after increasing by 33,000 in June. Construction companies hired 19,000 more workers after increasing payrolls by 13,000 jobs in June. Retail payrolls rebounded by 7,100 jobs last month after losing 20,200 in June.

Education and health services added 22,000 jobs last month, the fewest since October 2017, after boosting payrolls by 69,000 jobs in June. July’s slowdown in hiring reflected a loss of 10,800 education services jobs.

Transportation payrolls dropped by 1,300 jobs last month, with transit and ground transportation employment declining by 14,800 jobs. Utilities employment fell for a third straight month and the finance and insurance industry shed 9,400 jobs last month.

Government employment fell by 13,000 jobs in July.

(Reporting by Lucia Mutikani; Editing by Jonathan Oatis and Paul Simao)

Fed set to hold rates steady, remain on track for more hikes

FILE PHOTO: The Federal Reserve Building stands in Washington, DC, U.S., April 3, 2012. REUTERS/Joshua Roberts/File Photo

By Lindsay Dunsmuir

WASHINGTON (Reuters) – The Federal Reserve is expected to keep interest rates unchanged on Wednesday, but solid economic growth combined with rising inflation are likely to keep it on track for another two hikes this year even as President Donald Trump has ramped up criticism of its push to raise rates.

The U.S. central bank so far this year has increased borrowing costs in March and June, and investors see additional moves in September and December. Policymakers have raised rates seven times since December 2015.

The Fed will announce its decision at 2 p.m. EDT (1800 GMT) on Wednesday. No press conference is scheduled and only minor changes are anticipated compared with the Fed’s June policy statement, which emphasized accelerating economic growth, strong business investment and rising inflation.

“They’ve got expectations pretty much where they want them,” said Michael Feroli, an economist with JPMorgan. “They may need to finesse how they word the language on inflation, but I think the ultimate message is going to be the same.”

The U.S. economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs, Commerce Department data showed on Friday.

The Fed’s preferred measure of inflation – the personal consumption expenditures (PCE) price index excluding food and energy components- increased at a 2.0 percent pace in the second quarter, the data also showed. The latest monthly figures released on Tuesday showed prices in June were 1.9 percent higher than a year earlier.

The core PCE hit the U.S. central bank’s 2 percent inflation target in March for the first time since December 2011.

U.S. labor costs, a key measure of how much slack is left in the market, posted their largest annual gain since 2008 in the second quarter, the Labor Department said on Tuesday.

TRUMP CRITICISM

Economic growth has been buoyed by the Trump administration’s package of tax cuts and government spending, and Fed Chairman Jerome Powell has said overall the economy is in a “really good place.”

The unemployment rate stands at 4.0 percent, lower than the level seen sustainable by Fed policymakers.

The central bank is expected to continue to raise rates through 2019 but policymakers are keenly debating when the so-called “neutral rate” – the sweet spot in which monetary policy is neither expansive nor restrictive – will be hit.

Rate-setters are closely watching for signs that inflation is accelerating and they are expecting economic growth to slow as the fiscal stimulus fades.

They also remain wary of the potential effects of a protracted trade war between the United States and China which could push the cost of goods higher and hurt company investment plans.

The Fed’s policy path will see interest rates peak at much lower levels than in previous economic cycles. Even so, Trump, in a departure from usual practice that presidents do not comment on Fed policy, said he was worried growth would be hit by higher rates.

Administration officials played down the president’s comments, saying he was not seeking to influence the Fed.

On the campaign trail, Trump criticized Powell’s predecessor as Fed chief, Janet Yellen, for keeping rates too low.

Trump appointed Powell and Fed Governor Randal Quarles, and he has three other nominees to the rate-setting committee awaiting U.S. Senate confirmation. Almost all have been seen as mainstream in their attitude to economic policy. Economists say Trump has little influence over Fed policy beyond the personnel changes he has already made.

Trump’s tweets are a far cry from the 1970s when then-President Richard Nixon told the Fed chairman to kick rate setters “in the rump” to keep rates low until after an election. That stoked inflation and eventually strengthened the Fed’s independence, something that has become even more entrenched since.

“Powell is obviously someone who values the Fed’s independence,” said Paul Ashworth, an economist with Capital Economics. “I don’t expect them to change tack because of political pressure.”

(Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci and Paul Simao)

Fed’s Powell: ‘Several years’ of strong jobs, low inflation still ahead

Federal Reserve Chairman Jerome Powell gives his semiannual testimony on the economy and monetary policy before the Senate Banking Committee in Washington July 17, 2018. REUTERS/James Lawler Duggan

By Howard Schneider

WASHINGTON (Reuters) – U.S. Federal Reserve Chairman Jerome Powell, discounting the risk that a trade war may throw a global recovery off track, said the economy is on the cusp of “several years” where the job market remains strong and inflation stays around the Fed’s 2 percent target.

In written testimony delivered to the Senate Banking Committee on Tuesday, the Fed chair signaled not just that he believes the economy is doing well, but that an era of stable growth may continue provided the Fed gets its policy decisions right.

“With appropriate monetary policy, the job market will remain strong and inflation will stay near 2 percent over the next several years,” Powell said in one of the strongest affirmations yet that the Fed is within reach of its dual policy targets more than a decade after the United States endured a deep financial crisis and recession.

The Fed “believes that – for now – the best way forward is to keep gradually raising the federal funds rate” in a way that keeps pace with a strengthening economy but does not raise rates so high or so fast that it weakens growth, Powell said.

Stock and bond markets were largely flat as Powell began his testimony, and analysts said there was little of surprise in the initial message.

“His takeaway was the job market is strong, inflation is going to stay near 2 percent. To me that means two more hikes this year,” said Peter Cecchini, chief market strategist at Cantor Fitzgerald in New York.

Powell did not address his individual views on the appropriate pace of tightening or whether he thinks, as some of his colleagues have argued, that the Fed should pause its rate hike cycle sometime next year if inflation remains under control. But markets expect the central bank to raise rates two more times this year from the current target level of between 1.75 and 2 percent.

Powell took questions from Senators after presenting his written statement to them, and will appear before a House committee on Wednesday.

Powell and other Fed officials have in recent remarks pointedly declined to declare “victory” in their effort to hit the 2 percent inflation target, though most have acknowledged that, with joblessness at 4 percent, their employment goal has been reached.

But the Fed’s preferred measure of inflation hit 2.3 percent in May, and was right at 2 percent after excluding more volatile food and energy prices.

Inflation is “close” to the Fed’s target and “the recent data are encouraging,” Powell said as he laid out the reasons why he felt the United States’ near decade-long expansion was set to continue.

Still-low interest rates, a stable financial system, ongoing global growth and the boost from recent tax cuts and increased federal spending “continue to support the expansion” Powell said.

After a solid start to the year, growth appears to have accelerated as “robust job gains, rising after-tax incomes, and optimism among households have lifted consumer spending in recent months. Investment by businesses has continued to grow at a healthy rate,” Powell said.

Powell did nod to the uncertainty surrounding the Trump administration’s trade policies, which organizations like the International Monetary Fund have warned could curb global growth if ongoing rounds of U.S. tariffs and retaliation by other countries raise prices, lower demand, and disrupt global business supply chains.

But “it is difficult to predict the ultimate outcome of current discussions over trade policy,” he said. Overall the risks to the economy were “roughly balanced,” with the “most likely path for the economy” one of continued job gains, moderate inflation, and steady growth.

(Reporting by Howard Schneider; Additional reporting by Shruthi Shankar; Editing by Andrea Ricci)

U.S. inflation steadily firming; labor market strong

FILE PHOTO: People shop in Macy's Herald Square in Manhattan, New York, U.S., November 23, 2017. REUTERS/Andrew Kelly/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices barely rose in June, but the underlying trend continued to point to a steady buildup of inflation pressures that could keep the Federal Reserve on a path of gradual interest rate increases.

Other data on Thursday showed first-time applications for unemployment benefits dropped to a two-month low last week as the labor market continues to tighten. The Fed raised interest rates in June for a second time this year and has forecast two more rate hikes before the end of 2018.

“U.S. inflation continues to drift gradually higher in response to a nearly fully employed economy, with some nudging from tariffs,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “The Fed has every reason to pull the rate trigger again in October.”

The Labor Department said its Consumer Price Index edged up 0.1 percent as gasoline price increases moderated and the cost of apparel fell. The CPI rose 0.2 percent in May. In the 12 months through June, the CPI increased 2.9 percent, the biggest gain since February 2012, after advancing 2.8 percent in May.

Excluding the volatile food and energy components, the CPI rose 0.2 percent, matching May’s gain. That lifted the annual increase in the so-called core CPI to 2.3 percent, the largest rise since January 2017, from 2.2 percent in May.

Economists polled by Reuters had forecast both the CPI and core CPI rising 0.2 percent in June.

The Fed tracks a different inflation measure, which hit the U.S. central bank’s 2 percent target in May for the first time in six years. Economists expect the personal consumption expenditures (PCE) price index excluding food and energy will overshoot its target.

U.S. financial markets were little moved by the data.

In another report on Thursday, the Labor Department said initial claims for state unemployment benefits dropped 18,000 to a seasonally adjusted 214,000 for the week ended July 7, the lowest level since early May.

That suggests robust labor market conditions prevailed in early July. The economy created 213,000 jobs in June.

A tightening labor market and rising raw material costs are expected to push up inflation through next year. Manufacturers are facing rising input costs, in part because of tariffs imposed by the Trump administration on lumber, aluminum and steel imports.

So far, they have not passed on those higher costs to consumers. Fed officials have indicated they would not be too concerned with inflation overshooting its target.

Last month, gasoline prices rose 0.5 percent after increasing 1.7 percent in May. Food prices gained 0.2 percent, with food consumed at home rebounding 0.2 percent after falling 0.2 percent in May. Food prices were unchanged in May.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3 percent last month after increasing by the same margin in May. But the cost of hotel accommodation fell 3.7 percent after rising 2.9 percent in May.

Healthcare costs advanced 0.4 percent, with the price of hospital services surging 0.8 percent. Healthcare prices gained 0.2 percent in May. Consumers also paid more for prescription medication last month.

Prices for new motor vehicles rose for a second straight month. There were also increases in the cost of communication, motor vehicle insurance, education and alcoholic beverages.

But apparel prices fell 0.9 percent after being unchanged in May. The cost of airline tickets declined for a third straight month. Prices of household furnishings and tobacco also fell last month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Wall Street edges higher as strong jobs data offsets trade worries

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., June 28, 2018. REUTERS/Brendan McDermid

By Sruthi Shankar and Savio D’Souza

(Reuters) – U.S. stocks edged higher on Friday on stronger-than-expected job growth in June, offsetting concerns from a trade war between the United States and China.

Nonfarm payrolls increased by 213,000 jobs last month, the Labor Department said, topping expectations of 195,000, while the unemployment rate rose from an 18-year low to 4.0 percent and average hourly earnings rose 0.2 percent.

The moderate wage growth could allay fears of a strong build-up in inflation pressures, keeping the Federal Reserve on a path of gradual interest rate increases.

“It was what the market wanted to see: more jobs created than expected, wage growth moderate and creating jobs where you want to see them … It’s not just creating jobs it’s creating careers,” said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago.

The strong jobs data follows the minutes of the Federal Reserve’s latest policy meeting which showed policymakers discussed if recession lurked around the corner and expressed concerns trade tensions could hit an economy that by most measures looked strong.

Earlier stock futures were set for a more cautious start after the United States and China imposed tariffs on each other’s goods worth $34 billion, with Beijing accusing Washington of starting the “largest-scale trade war.”

President Donald Trump warned the United States may ultimately target over $500 billion worth of Chinese goods, but global markets remained broadly sanguine, though concerns about the conflict escalating capped appetite for risk.

“The expectation of things is always worse for the market than the reality,” said Kinahan. “We certainly have to pay attention to trade but it’s been expected for a long time.”

At 9:54 a.m. EDT the Dow Jones Industrial Average was down 19.67 points, or 0.08 percent, at 24,337.07, the S&P 500 was up 4.26 points, or 0.16 percent, at 2,740.87 and the Nasdaq Composite was up 34.68 points, or 0.46 percent, at 7,621.10.

Eight of the 11 major S&P sectors were higher, led by a 0.8 percent jump in the S&P healthcare index.

Biogen jumped 17.8 percent after the company and Japanese drugmaker Eisai Co said the final analysis of a mid-stage trial of their Alzheimer’s drug showed positive results.

Among the decliners were industrials, energy and materials indexes.

Boeing, the single largest U.S. exporter to China, slipped 0.7 percent and Caterpillar dropped 1.3 percent.

The Philadelphia Semiconductor index, which is made up of chipmakers most of whom rely on China for a substantial chunk of revenue, dropped 0.4 percent.

Advancing issues outnumbered decliners by a 1.65-to-1 ratio on the NYSE and by a 2.07-to-1 ratio on the Nasdaq.

The S&

P index recorded 10 new 52-week highs and two new lows, while the Nasdaq recorded 67 new highs and nine new lows.

(Reporting by Sruthi Shankar and Savio D’Souza in Bengaluru; Editing by Arun Koyyur)

Americans report stronger finances in Trump’s first year: Federal Reserve

FILE PHOTO: The Federal Reserve headquarters in Washington, U.S., September 16, 2015. REUTERS/Kevin Lamarque/File Photo

WASHINGTON (Reuters) – The share of Americans who report they are doing “at least okay” financially rose in President Donald Trump’s first year in office, according to Federal Reserve data published on Tuesday.

The data was in line with other readings detailing America’s long recovery from the 2007-09 recession, including years of mostly steady job growth and a more recent uptick in wages.

The U.S. central bank said 74 percent of U.S. adults said their finances were at least okay in 2017, four percentage points higher than in 2016. Improvement was strongest in lower income households.

Still, about two in five adults faced a high likelihood of material hardship, such as an inability to afford sufficient food, medical treatment, housing or utilities, according to the Fed’s report, which was based on a survey of 12,246 people last year.

Also, about one in five people reported they personally knew someone who had been addicted to opioids. White adults were about twice as likely to be personally exposed to opioid addiction than blacks or Hispanics, regardless of education levels, the Fed said.

People exposed to opioid addiction also gave more dismal assessments of the local and national economies, although jobless rates in their areas were not higher than in areas where people were less exposed to opioids, the Fed said in the report.

“This analysis suggests the need to look beyond economic conditions to understand the roots of the current opioid epidemic,” according to the report.

The Fed has conducted the survey since 2013, although last year was the first time people were asked about opioid addiction.

Trump took office in January 2017 after a presidential election campaign that included promises to boost the economy and fight opioid addiction.

While the U.S. unemployment rate had been falling for several years before Trump assumed office, it has continued to fall and is currently at a 17-year low at 3.9 percent.

(Reporting by Jason Lange; Editing by Susan Thomas)

U.S. economy gains 313,000 jobs in February; wage growth slows

Job seekers and recruiters gather at TechFair in Los Angeles, California, U.S. March 8, 2018. REUTERS/Monica Almeida

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth surged in February, recording its biggest increase in more than 1-1/2 years, but a slowdown in wage gains pointed to only a gradual increase in inflation this year.

Nonfarm payrolls jumped by 313,000 jobs last month, boosted by the largest rise in construction jobs since 2007, the Labor Department said on Friday. The payrolls gain was the biggest since July 2016 and triple the roughly 100,000 jobs the economy needs to create each month to keep up with growth in the working-age population.

The labor market is benefiting from strong domestic demand, an improvement in global growth as well as robust U.S. business sentiment following the Trump administration’s $1.5 trillion income tax cut package that come into effect in January.

Average hourly earnings edged up four cents, or 0.1 percent, to $26.75 in February, a slowdown from the 0.3 percent rise in January. That lowered the year-on-year increase in average hourly earnings to 2.6 percent from 2.8 percent in January.

The unemployment rate was unchanged at a 17-year low of 4.1 percent in February for a fifth straight month as 806,000 people entered the labor force in a sign of confidence in the job market. The average workweek rebounded to 34.5 hours after falling to 34.4 hours in January.

With Federal Reserve officials considering the labor market to be near or a little beyond full employment, the moderation in wage growth last month did little to change the view that the U.S. central bank will raise interest rates at its March 20-21 policy meeting.

Slow wage growth, however, could temper expectations the Fed will raise its rate forecast to four hikes this year from three. There is optimism that tightening labor market conditions will spur faster wage growth this year and pull inflation toward the Fed’s 2 percent target.

“While the employment gains unequivocally suggest underlying strength in the economy, wage gains remain muted enough for the Fed to continue with an only gradual normalization of the policy stance. Stock markets are reacting accordingly,” said Harm Bandholz, chief U.S. economist at UniCredit Bank in New York.

Speculation that the central bank would upgrade its rate projections was stoked by Fed Chairman Jerome Powell when he told lawmakers last week that “my personal outlook for the economy has strengthened since December.”

While Powell said there was no evidence of the economy overheating, he added “the thing we don’t want to have happen is to get behind the curve.”

Economists polled by Reuters had forecast payrolls rising by 200,000 jobs last month and the unemployment rate falling to 4.0 percent. Average hourly earnings had been expected to increase 0.2 percent in February.

Data for December and January was revised to show the economy adding 54,000 more jobs than previously reported.

U.S. stock indexes opened higher after the data while prices of U.S. Treasuries were trading lower. The dollar was largely unchanged against a basket of currencies.

CONSTRUCTION SHINES

Some companies like Starbucks Corp and FedEx Corp have said they would use some of their windfall from a tax cut package to boost workers’ salaries. Walmart announced an increase in entry-level wages for hourly employees at its U.S. stores effective in February.

The employment report suggested the economy remained strong despite weak consumer spending, home sales, industrial production and a wider trade deficit in January that prompted economists to lower their first-quarter growth estimates. Gross domestic product estimates for the January-March quarter are around a 2 percent annualized growth rate. The economy grew at a 2.5 percent pace in the fourth quarter.

The full impact of the tax cuts and a planned increase in government spending has yet to be felt, and a robust job market could heighten fears of the economy overheating.

“The economy is simply too strong,” said Chris Rupkey, chief economist at MUFG in New York. “There’s no reason whatsoever for the Federal Reserve to have a stimulative monetary policy at this stage of the business cycle.”

Economists expect the unemployment rate to fall to 3.5 percent this year. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, was unchanged at 8.2 percent last month.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, rose three-tenths of a percentage point to a five-month high of 63.0 percent in February.

An even broader gauge of labor market health, the percentage of working-age Americans with a job, increased to 60.4 percent last month from 60.1 percent in January.

Employment gains were led by the construction sector, which added 61,000 jobs, the most since March 2007. Hiring at construction sites was likely boosted by unseasonably mild temperatures in February.

Manufacturing payrolls increased by 31,000 jobs, rising for a seventh straight month. The sector is being supported by strong domestic and international demand as well as a weaker dollar. Retail payrolls jumped by 50,300, the largest increase since February 2016.

The Labor Department said that was because on an unadjusted basis the sector hired fewer workers than usual for the holiday season and did not shed many jobs after the holidays. As a result, retail employment rose after the seasonal adjustment, the department said.

Government employment increased by 26,000 jobs last month, with hiring of teachers by local governments accounting for the bulk of the rise. There were also increases in payrolls for professional and business services, leisure and hospitality as well as healthcare and social assistance.

Financial sector payrolls increased by 28,000 last month, the most since October 2005.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci and Paul Simao)

Dollar adds to gains as Fed’s Powell nods to ‘gradual’ rate hikes

FILE PHOTO: A security guard walks past a montage of U.S. $100 dollar bills outside a currency exchange bureau in Kenya's capital Nairobi, July 23, 2015. REUTERS/Thomas Mukoya/File Photo

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar added to gains against a basket of major currencies on Tuesday after Federal Reserve Chairman Jerome Powell told U.S. lawmakers the central bank would stick with gradual interest rate increases despite the added stimulus of tax cuts and government spending.

Powell pledged to “strike a balance” between the risk of an overheating economy and the need to keep growth on track. His congressional testimony was his first public appearance since being sworn in as chairman earlier this month.

Powell is scheduled to present his remarks to a U.S. House of Representatives committee at a hearing scheduled for 10 a.m. EST (1500 GMT), followed by questions from lawmakers.

Brad Bechtel, managing director FX at Jefferies, in New York, said Powell’s comments were generally positive for the dollar.

“He is hawkish in the context of being very upbeat on the economy but willing to go at a moderate pace to normalize policy,” Bechtel said.

The dollar index, which measures the greenback against a basket of six other major currencies, was up 0.26 percent at 90.089.

Some of the headwinds the U.S. economy faced in previous years have turned into tailwinds, Powell said, noting recent fiscal policy shifts and the global economic recovery.

“That’s sort of a big statement if you think about it,” said Bechtel.

“He’s kind of dialed it up just a notch from where (Powell’s predecessor, Janet) Yellen was,” Bechtel said.

The Fed is expected to approve its first rate increase of 2018 at its next policy meeting in March, when it will also provide fresh economic projections and Powell will hold his first news conference. Fed policymakers anticipate three rate increases this year.

“From a 10,000-foot view, Powell’s prepared remarks are common-sense,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

“It’s more interesting to see that the market is interpreting the comments as somewhat hawkish, and that’s more informative about the trading bias right now than about the Fed’s actually likely policy path.”

The dollar was up 0.19 percent against the Japanese yen at 107.11 yen.

The euro was down 0.26 percent against the dollar at 1.2284.

Italians vote in a national election on Sunday, while the leading political parties in Germany will decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor.

There was not a whole lot of fear in the market about the outcome of the Italian election, Bechtel said.

“There is a lot of folks looking at hedges but not a huge amount of activity in that space. Kind of an ambivalence toward the election this weekend, which is interesting,” said Bechtel.

(Reporting by Saqib Iqbal Ahmed; Editing by Jonathan Oatis)

Explainer: Rising U.S. inflation and what it means for markets

A man unloads vegetables at Grand Central Market in Los Angeles, California, March 9, 2015. REUTERS/Lucy Nicholson

By Chuck Mikolajczak and Lucia Mutikani

(Reuters) – U.S. financial markets have been roiled recently by something neither the economy nor investors have had to contend with for the better part of a decade: concerns they may soon have to reckon with rising inflation.

The S&P 500.is down more than 7 percent from its lifetime high hit on Jan. 26 through Feb. 13, after falling as much as 10.2 percent, and yields on the benchmark U.S. 10-year note have climbed to a four-year high, largely due to inflation worries.

What exactly is inflation, aside from a rise in prices for goods and services, and why is it having such a strong influence on markets?

Inflation is measured in a number of ways by various government agencies, and as long as the economy continues to expand it will be a consideration for markets.

Investors will get the latest inflation data on Thursday with the monthly Producer Price Index.

WHAT IS INFLATION AND HOW IS IT MEASURED?

While inflation decreases consumer purchasing power, a certain level of inflation is considered a reflection of a strengthening economy and the impact on consumers can be offset by rising wages.

The U.S. government publishes several inflation measures on a monthly and quarterly basis. The main measures are the Consumer Price Index (CPI) and the personal consumption expenditures (PCE) price indexes. The CPI and PCE are constructed differently and perform differently over time.

The monthly CPI, compiled by the Labor Department’s Bureau of Labor Statistics (BLS), measures the change in prices paid by consumers for goods and services. The BLS data is based on spending patterns of consumers and wage earners, although it excludes rural residents and members of the Armed Forces.

CPI measures the prices that consumers pay for frequently purchased items. The components are weighted to reflect their relative importance, with the weightings derived from household surveys. Some of the components of the CPI basket such as food and energy can be volatile. Stripping out food and energy from the CPI gives us the core CPI, seen as a measure of the underlying inflation trend.

The January reading on consumer prices released on Wednesday showed prices rose more than expected, up 0.5 percent versus the 0.3 percent expectation. The core reading rose 0.3 percent against the 0.2 percent forecast. Both numbers increased from the 0.2 percent reading for December.

Another reading is the Producer Price Index (PPI), which measures prices from the seller’s point of view.

The Federal Reserve, whose mandate includes price stability along with maximum employment, prefers the personal consumption expenditures (PCE) price indexes constructed by the Commerce Department’s Bureau of Economic Analysis. PCE is considered to be more comprehensive because it includes some components that are excluded from the CPI. According to the BEA, the PCE reflects the price of expenditures made by and on behalf of households. Weights are derived from business surveys.

Housing has a greater weighting in the CPI than in the PCE index. The weighting for medical care is greater in the PCE price index than in the CPI. As with CPI, food and energy components of the PCE are volatile. Stripping them out yields the core PCE, which measures the underlying inflation trend. The core PCE is the Fed’s preferred measure for its 2 percent inflation target.

WHAT SPARKED THE RECENT INFLATION WORRY?

The government’s monthly employment report for January, released on Feb. 2, showed wages posted their largest annual gain in more than 8-1/2 years, suggesting the economy was moving closer to full employment and inflation was on the horizon.

If the economy continues to gain momentum, inflation is likely to rise further toward the Fed’s 2 percent target.

There is concern, however, that the recent U.S. tax overhaul by the Trump administration, which slashed the corporate income tax rate and cut personal income tax rates, could cause an economy that may be nearing full capacity to overheat and prompt the Fed to become more aggressive than anticipated in its course of interest rate hikes.

Markets are pricing in an 87.5 percent chance of a quarter-point increase at the U.S. central bank’s next policy meeting in March. The Fed has forecast three hikes this year, after raising rates three times in 2017.

Some market participants are unsure about how swiftly the Fed will react to inflation and market turbulence under its new chair, Jerome Powell. The March meeting will be the first since Powell took over from Janet Yellen. Recent comments from some Fed officials suggested the possibility of more hikes should the economy continue to strengthen.

HOW HAS INFLATION AFFECTED MARKETS?

Many analysts believe the stock market was overdue for a pullback because valuations, as measured against corporate earnings, have been rich by historic standards, and that the employment data showed economic fundamentals underpinning stocks are strong. Inflation has yet to rise to concerning levels, and as long as the pace remains modest, stocks have room to climb.

Healthy economic growth, along with U.S. deficit spending and moves by central banks around the world to lift interest rates from ultra-low levels, has driven U.S. bond yields to a four-year high. Rising yields could dent the attractiveness of high dividend-paying stocks to investors and trigger increased borrowing costs for U.S. companies and households, which could crimp economic growth.

The initial reaction to the CPI data on Wednesday was sharp, with S&P 500 e-mini futures <ESc1> falling to a session low of 2,627 while yields on the benchmark U.S. 10-year note <US10YT=RR> rose as high as 2.891 percent. The dollar initially spiked higher against a basket of major currencies <.DXY> before weakening.

However, stocks recovered and turned positive shortly after the opening bell and yields on the 10-year note eased.

A strengthening currency would normally go hand-in-hand with an improving economy, yet the U.S. dollar is near four-year lows even after a recent uptick. Some of the weakness has been attributed to anticipation of scaling back in stimulus measures by central banks other than the Fed.

If the U.S. economy fails to show any meaningful uptick in inflation as currently feared, that could tie the Fed’s hands when it comes to interest rate hikes and drag the dollar lower.

(Reporting by Chuck Mikolajczak; Additional reporting by Richard Leong; Editing by Alden Bentley and Leslie Adler)

A decade after recession, a jump in U.S. states with wage gains for American workers

Newly hired employees take a break from training to pose for a group photo at the chain’s soon-to-open 54th outlet in Oakland, California ,U.S., January 24, 2018.

By Ann Saphir, Jonathan Spicer and Howard Schneider

OAKLAND, Calif./CANTON, N.Y./WASHINGTON (Reuters) – The kind of pay raises for which American workers have waited years are now here for a broadening swath of the country, according to a Reuters analysis of state-by-state data that suggests falling unemployment has finally begun boosting wages.

Average pay rose by more than 3 percent in at least half of U.S. states last year, up sharply from previous years. The data also shows a jump in 2017 in the number of states where the jobless rate zeroed in on record lows, 10 years after the financial crisis knocked the economy into a historic recession.

The state-level data could signal an inflection point muffled by national statistics.

Over the past four years, the U.S. economy added 10 million jobs and the overall unemployment rate fell to its lowest level since 2000. Yet wages have disappointed.

The disconnect has puzzled economists at the Federal Reserve, frustrated politicians concerned about rising inequality, and held regular Americans back, even as businesses have benefited and stock markets have surged, particularly in the first year of U.S. President Donald Trump’s presidency.

Trump says his tax cuts and regulation rollbacks are lifting business sentiment, and in an upbeat address to Congress on Tuesday, he said Americans “are finally seeing rising wages” after “years and years” of stagnation.

Indeed, average hourly earnings were up 2.9 percent in January year-on-year, the biggest rise in more than 8-1/2 years but still less than the 3.5 percent to 4 percent economists say would be a sign of a healthy economy.

The Reuters analysis and interviews with businesses across the country do show wage increases in industries ranging from manufacturing to technology and retail. Executives are mixed, however, on how much to credit Trump after several years of job growth that has chopped nearly six percentage points from the unemployment rate since its peak of 10 percent at the height of the 2007-2009 recession.

“Everyone in the building knows that they can leave and make more money,” said Michael Frazer, president of Frazer Computing, which provides software to U.S. used-car dealers from its offices in northern New York state. In response he raised wages by 6.1 percent at the end of 2017, up from 3.7 percent the previous year.

In Portland, Oregon, software provider Zapproved now hires coding school graduates and spends up to three months training them because the experienced software developers it used to hire have become too expensive. And still, CEO Monica Enand says she gives her developers twice-yearly raises “to make sure we are in the market for pay.”

JOBLESS RATES AT RECORD LOWS

The Reuters analysis of the most recent data available found that in half of the 50 states, average hourly pay rose by more than 3 percent last year. That’s up from 17 states in 2016, 12 in 2015, and 3 in 2014. Average weekly pay rose in 30 states, also up sharply from prior years, the analysis showed.

Unemployment rates are near or at record lows in 17 states, including New York, up from just five in 2016, the Reuters analysis shows.

“Wage growth tends to accelerate when the unemployment rate gets really strong,” said Bart Hobijn, an economics professor at Arizona State University.

California, Arkansas, and Oregon were among those both notching 3-percent-plus wage gains and plumbing record-low unemployment rates. This broadening of benefits to U.S. workers comes as robust global growth pushes up wages from Germany to Japan.

New York Fed President William Dudley said last month that firmer wage gains in states with lower unemployment rates gave him confidence that U.S. inflation, long stubbornly low, would soon rise.

In California, home of Noah’s New York Bagels, more than half of its 53 stores now pay their new hires more than the legal minimum wage, twice as many as in mid-2017.

“It’s very challenging to find enough people” in low-unemployment areas like the San Francisco Bay Area, said Noah’s president Tyler Ricks, who expects to hike pay further this year even as he opens five new stores.

To be sure, some states like Idaho with very low unemployment continue to have slow wage growth, while some like Delaware with very strong wage growth still have jobless rates well above their record lows.

And the share of gross domestic product that feeds back to labor as compensation has only edged slightly higher this decade, after generally declining since the 1970s, suggesting workers have a long way to make up ground.

Yet the state-level data hints at a first step.

Galley Support, a Sherwood, Arkansas-based manufacturer of latches for airplane kitchens and toilets, gave unskilled workers as much as a 20 percent pay hike last year. CEO Gina Radke said it will sap profit but with the Trump administration’s business-friendly policies set to benefit aircraft companies like Boeing, she added, “We feel confident that we will see an increase in sales to cover the increase in wages.”

Work-site managers at Gray, a company that oversees the building of factories and other projects from its headquarters in Lexington, Kentucky, also got a 20 percent raise since 2016. Yet a paycheck of up to $200,000 a year, plus bonuses, often isn’t enough to fill all the jobs on offer.

“There is just so much work around for people that it’s just hard to lure them away,” said Susan Brewer, Gray’s vice president of human resources.

(Reporting by Ann Saphir in Oakland, Calif., Jonathan Spicer in Canton, New York and Howard Schneider in Washington; Editing by Andrea Ricci)