The most recent June jobs report showed us that while the job market still seems pretty strong, there are signs of things slowing down.
In June, the job market added 209,000 jobs. Yet this was below analysts expectation and the smallest increase since December 2020.
Despite fresh signs of a slowing jobs market, most traders think that the Federal Reserve will raise interest rates a little bit at its meeting this week.
As of Tuesday, the CME FedWatch Tool shows a 95% probability of a 0.25-point hike.
Economists are expecting an annual 3.1% inflation increase in July. This is a bit lower than the 4% increase in May.
It's a positive sign for the economy that inflation is getting closer to the Fed's long-term 2% goal. But it's important to remember the Fed's 2% is a "long-term" goal. That means even if inflation fell to 2% in July, the Fed would still have work to do.
The problem is, there's no way for us to know exactly how much more would need to be done. Let me explain...
The Federal Reserve basically has two jobs: to make sure there are as many jobs as possible and to keep prices stable.
To do the second job, it wants to keep annual inflation around 2%.
The Federal Reserve wants to keep inflation at 2% because it helps the economy stay stable and grow in a good way. This level of inflation helps avoid prices going down too much, which can make people not want to spend money and slow down the economy.
How so?