Inflation Pressures Are Easing but Rate Cut Forecast Remains Uncertain

The New Year is beginning where the old one ended -- with uncertainty about when – or whether – the Federal Reserve will begin cutting interest rates.

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The big news this month was the labor market report, and the news was very good. Employers added 257,000 jobs in January — a little below the sizzling pace registered in November and December. The totals for both months were revised upward, adding nearly 150,000 jobs to their totals. Bottom line: The economy produced nearly one million jobs in the final quarter of last year, representing the best three-month performance since 1997. Employment gains for the year were higher than in any year since 1999.

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It’s getting harder for pessimists to support their view that the economy is stalling or moving in the wrong direction.

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The year began with a strong jolt of positive news: Employers added 252,000 jobs in December, beating estimates, and the unemployment rate declined to 5.6 percent, its lowest level since June, 2008. But wages declined for the first time in more than a year and the labor participation rate slumped, as well, casting a “yes-but” shadow over the otherwise encouraging report, and leading some analysts to predict that the Federal Reserve will delay its plans to begin raising interest rates – this despite a robust third quarter rate of economic growth (5 percent) that was the fastest in more than a decade.

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Another strong employment report was the big economic news in November; what is happening in the housing market was the big question.