Jerome Powell, chairman of the U.S. Federal Reserve, puts on his glasses during a House Financial Services Committee hearing in Washington, D.C., the U.S. (Photographer: Andrew Harrer/Bloomberg)

Fed Top Brass Is Keenly Watching These Jobs Day Data Points

(Bloomberg) -- New Federal Reserve Chairman Jerome Powell feels good about the U.S. labor market, based on his recent congressional testimony. It’s been adding jobs at a steady clip, it’s drawn people back from the sidelines, and unemployment has plunged.

Still, there are a few details he and his colleagues at the U.S. central bank might be watching carefully as they assess whether it makes sense to upgrade their outlook, which currently predicts three interest-rate increases in 2018.

Below are three key charts that, based on their recent comments, policy makers will probably keep an eye on when they’re weighing the state of the economy ahead of their March 20-21 policy meeting in Washington.

Wages in Focus

Fed Top Brass Is Keenly Watching These Jobs Day Data Points

Average hourly earnings are expected to be the star of Friday’s show. They popped last month, spurring a stock-market selloff as skittish investors worried that the Fed might hike rates faster than expected. And in a more lasting way, they’ve been a major mystery for the Fed throughout the latter part of this expansion, because they haven’t accelerated even as unemployment has fallen.

“We don’t see any strong evidence yet of a decisive move up in wages,” Powell told lawmakers during his March 1 testimony. He sees them bouncing along around 2.5 percent right now, he said, and that’s important to policy.

“Nothing in that suggests to me that wage inflation is at a point of acceleration,” Powell said. “And so, I would expect that some continued strengthening in the labor market can take place without causing inflation.”

Participation Counts

Fed Top Brass Is Keenly Watching These Jobs Day Data Points

One sign that’s really been heartening for Fed officials? This chart. They’re thrilled that prime-age participation has been moving up, because after the Great Recession, there was no real reason to believe that it was going to arrest its decades-long decline. As more Americans work or put in job applications, it improves the productive capacity of the economy.

“It is an open question as to what portion of the prime-age Americans who are out of the labor force may prove responsive to tight labor market conditions," Fed Governor Lael Brainard said in a speech in New York earlier this week. She called the recent move up an “encouraging development.”

Looking for Three

Fed Top Brass Is Keenly Watching These Jobs Day Data Points

This chart isn’t that novel, but it is important: unemployment is something to watch in this report and every report this year, because it’s probably headed below 4 percent. That isn’t a magical threshold of any sort, but it is an interesting one, because it’s historically really abnormal for the jobless level to sink that low.

As Fed Governor Randal Quarles recently noted, at 4.1 percent, the rate is at "its lowest level since the 1960s outside of a brief period from 1999 to 2000” and underneath the levels that Fed officials think can sustainably persist in the longer run. And that gets us full-circle back to chart one.

“With the unemployment rate below most estimates of its natural rate, wages appear to have accelerated a little of late after a period of relatively muted increases,” Quarles told his audience. “I expect a further modest step-up in the pace of wage gains.”

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