San Francisco Fed's Daly, usually dovish, turns hawkish: Zero job growth doesn't necessarily mean a weak labor market.

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San Francisco Federal Reserve President Daly, a dove and 2027 voting member, stated that in the context of labor force growth nearly coming to a halt, zero or even negative growth in US nonfarm payrolls does not necessarily indicate labor market weakness.

On Friday, Daly said in a blog post that when labor force growth approaches zero, having zero or even negative net job growth in a given month may still align with expectations and is not necessarily a sign of weakness.

So, what does this mean for monetary policy? Firstly, job growth itself is unlikely to be a reliable indicator of labor market strength.

Ratio indicators such as employment-population ratio, unemployment rate, quit rate, and hiring rate can incorporate changes in labor force size, thus more clearly reflecting the health of the labor market.

Communication will become more difficult. It will not be easy to help outsiders understand that an economy with zero job growth can be consistent with full employment.

The robust, vibrant labor market that has dominated expectations in recent history may be increasingly out of reach. With inflation data persistently above target levels, policymakers will have to clarify how they plan to steer the economy toward our statutory goals.

On the same day, the US released better-than-expected nonfarm payroll data. In March, US nonfarm payrolls increased by 178,000, reaching a one-year high, while the unemployment rate unexpectedly fell to 4.3%. In response, the 'new Fed news agency' said that stronger-than-expected job growth temporarily resolves the Fed’s dilemma, and the market has reduced bets on rate cuts.

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