FOMC Sticks to Suspension of Rate Hikes as Jobs Data Suggests Sagging Labor Market – Bloomberg

2023-06-04 13:03:26

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.

Upper row: Number of non-agricultural employees, Lower row: Unemployment rate

Source: U.S. Bureau of Labor Statistics

“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.

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