CHICAGO, Dec 29: Increasingly weak job growth is likely to dictate more interest-rate cuts from the Federal Reserve in the first quarter of 2008, regardless of an uptick in inflation.

The Federal Open Market Committee’s single-minded focus on the growth-vs-inflation mix has been diverted by the global credit crunch that began in August. If money market pressures recede in the new year, as many hope, the FOMC will be able to focus more on economic fundamentals.

“At this point, the labour market has to weaken for the Fed to cut several more times in 2008,” said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

The Fed has cut its benchmark federal funds rate by 100 basis points since mid-September, to 4.25pc. Central bankers meet Jan 29-30 to mull the next move, and will also issue updated economic central tendency forecasts.

“Fed officials are remarkably sanguine about the labour market, given that they also expect significant slowing in the growth rate,” said economists at Goldman Sachs.

The mid-point of the Fed’s October central tendencies forecasts reflected only a marginal rise in joblessness in 2008, to 4.85 per cent from 4.75 per cent in 2007, while the mid-point for GDP growth was knocked down to 2.15pc from 2.45 per cent.

“Fed officials are vulnerable to unpleasant surprises in the labour market,” Goldman said. “The labour market is in a slow but steady process of deterioration.”

Several tepid employment indicators this week have created a negative bias toward the December nonfarm payrolls report, which is due on Jan 4 and is potentially the biggest piece of data before the FOMC meeting at the end of the month.

On Friday, the Chicago purchasing managers report on the regional economy showed hiring in negative territory in December for the second time in three months, even as regional output rose more strongly than expected.

The Conference Board’s help-wanted index for November was reported at 21 versus a downwardly revised 22 in October, and down from 29 a year earlier. It was the lowest reading in a series that stretches back to 1951.

The index measures job ads in US newspapers, but data for online advertising also point to reduced recruitment efforts, said Ken Goldstein, labour economist at the Conference Board, a private research group based in New York.

Meanwhile, Thursday’s jobless claims for the week ended Dec 22, at 349,000, were the highest in a month and pushed the four-week average to the highest since October 2005.

Continuing claims at 2.646 million were the highest since November 2005.—Reuters