Dive Brief:

• U.S. payrolls rose last month by 227,000 as Boeing clawed back from a strike by 33,000 workers and companies in the Southeast recovered from two third-quarter hurricanes.
• At the same time, the labor market continued to cool in November from a post-pandemic fever, with the unemployment rate edging up 0.1 percentage point to 4.2%, the Bureau of Labor Statistics reported Friday.
• “The labor market remains in a good position,” San Francisco Fed President Mary Daly said Friday, citing the fresh data. “Jobs are expanding — there's about one vacancy for every unemployed worker — so that's a balanced labor market,” she said during a webcast. “That means people are still getting jobs, and firms can find workers.”

Dive Insight:

Payrolls on average have expanded by 172,000 in each of the past three months, indicating that “the underlying growth in labor demand remains solid despite the small uptick in the unemployment rate,” Fitch Ratings Chief Economist Brian Coulton said Friday.

The healthy job market reinforces odds that the Federal Reserve will trim the main interest rate at a Dec. 17-18 policy meeting in the third monetary easing since September, Coulton said.

Indeed, on Friday traders in interest rate futures raised the probability to 85% from 71% on Thursday that the Fed will cut the federal funds rate by a quarter point, according to the CME FedWatch Tool. 

The Bureau of Labor Statistics on Friday also upgraded its figure for October payroll growth to 36,000 from 12,000.

“On average, it basically feels like both the payroll number and the unemployment rate and the various ways you look at the job market — it was cooling for a while from the hottest that we've ever seen to something like sustainable full employment,” Chicago Fed President Austan Goolsbee said Friday.

“What we wanted to do is stabilize there and not keep getting worse, and the last several months feel like it's hovered around in that space,” Goolsbee said during a question and answer session at the district bank.

Although payroll data smooths the way for further easing, policymakers will likely devote time to considering 4% annual wage growth as reported Friday, Coulton said in an email.

“That won’t stop the Fed from cutting rates again later this month, but it will give them pause for thought,” he said, noting that the pace of wage gains is twice the Fed’s 2% inflation target.

In recent days several central bankers, including Fed Chair Jerome Powell, have backed a cautious approach to future reductions in the federal funds rate.

The healthy job market and unexpected strength in the economy give policymakers time to mull the pace of future cuts to the benchmark interest rate, Powell said Wednesday.

“The economy is strong and it's stronger than we thought it was going to be in September,” when the Fed began reducing borrowing costs from a two-decade high, Powell said.

“The labor market is better, and the downside risks appear to be less in the labor market,” he said during a webcast hosted by The New York Times.

“So the good news is that we can afford to be a little more cautious as we try to find neutral,” Powell said, referring to a level in the federal funds rate that neither inhibits nor speeds economic growth.

Policymakers since September have trimmed the benchmark interest rate by 0.75 percentage points to a range between 4.5% and 4.75%.

The Fed may soon need to take a more prudent approach to easing, Cleveland Fed President Beth Hammack said Friday.

“I believe we are at or near the point where it makes sense to slow the pace of rate reductions,” Hammack said.

“Moving slowly will allow us to calibrate policy to the appropriately restrictive level over time given the underlying strength in the economy,” she said, noting that inflation, economic growth and the labor market have exceeded median estimates by Fed officials in September.

“To me, this situation calls for a slower pace of rate cuts relative to my September forecast,” she said. “Achieving our goals means seeing further convincing evidence that inflation is indeed continuing to decline to 2% while sustaining a healthy labor market.”