The U.S. jobs report in May showed signs of slack in the labor market, even as nonfarm payroll growth accelerated. The Federal Open Market Committee (FOMC) is likely to keep interest rates unchanged at its meeting this month and consider raising them again over the summer.
In May, non-farm payrolls increased by 339,000 from the previous month. The figure for April was revised upwards to an increase of 294,000 (a preliminary estimate of 253,000). Meanwhile, the unemployment rate rose to 3.7%. The average hourly wage increased by 4.3% from the same month of the previous year, slowing down.
U.S. employment numbers beat expectations, wages slowing
Fed Chairman Jerome Powell and some other officials have said they should give the Fed more time to analyze future data and changes in outlook before deciding whether to raise rates further. The mixed jobs data may strengthen the officials’ argument.
“We maintain our baseline scenario of the FOMC keeping rates unchanged at its next meeting,” said Rubira Falqui, chief U.S. economist at High Frequency Economics.
In the short-term money market, the probability of a US interest rate hike by the end of July has increased. The chances of a rate hike at the FOMC meeting on June 13-14 have increased, but investors are still inclined to expect a pause in policy rate hikes at the June meeting. After the jobs report was released, expectations for a rate hike at the June meeting rose to 31% from 24% the day before.
The odds of a rate hike in June dipped temporarily this week. Fed Governor Jefferson said on May 31 that he wouldn’t rule out future tightening, but that holding off rate hikes would give policymakers time to weigh the data. He has been named Vice Chairman of the Fed.
Fed Governor Jefferson Suggests Suspension of Rate Hike in June, Does Not Mean End
“We continue to expect a hold at the June meeting,” said Stephen Stanley, chief U.S. economist at Santander US Capital Markets. “Whether we raise rates in July, September, or both will largely depend on inflation data. I’m sure,’ he said.
The unemployment rate soared in the May employment report. The month-to-month rise was the largest since April 2020, signaling a waning of price pressures.
Financial authorities have also expressed concern over the impact of the series of bankruptcies in March on the credit environment. Tighter credit conditions could lead to lower lending and slower economic growth later in the year, they said. Officials also want to give them time to assess the impact of the fastest rate hikes in 40 years.
“Even with today’s jobs report, it’s still 50-50,” Derek Tan, economist at LH Meyer/Monetary Policy Analytics, said of the June meeting. The firm expects a rate hike this month, saying, “If we don’t raise in June, we will have to raise rates in July. I strongly disagree,” he said.
Original title:Fed Seen Sticking With Rate Pause as Wages Show Some Cooling(excerpt)
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