Fed officials have suggested they may keep rates on hold at their scheduled meeting in June, pausing rates after the 10th straight hike to give them time to assess economic conditions. New employment data released on Friday could help inform policymakers trying to decide if now is the right time to take a break.
Unfortunately for central bankers, these created a complex picture. While unemployment rose and wage growth slowed in May, evidence of the recession the Fed has been waiting for, actual job gains were much stronger than economists expected.
Central bankers raised interest rates to a certain range 5 to 5.25 percent But they suggest that a pause in rate hikes in the near term may be appropriate to assess how the economy is absorbing the big shift in policy. Consider the impact of other developments, including the aftermath of the recent banking turmoil.
Rising interest rates will make it more expensive to borrow to buy a home or finance a car and will cool the economy, but the full effect will take time. In response to soaring borrowing costs, businesses are gradually abandoning expansion plans and cutting jobs, leading to weaker wage growth and an overall economic slowdown.
That’s why officials are so focused on job market data. These data are a referendum on how well policies to cool the economy are working and suggest whether inflation could slow. Officials fear that firms could continue to fuel rapid wage increases and push prices up sharply to prevent rising wages from squeezing profits.
Friday’s job market data brought both good and bad news for Fed policymakers. The unemployment rate rose to 3.7% from 3.4% last time, and wage growth slowed slightly. Still, employers added 339,000 jobs in May, well above economists’ expectations and up from the previous month.
These conflicting signals of softening on the one hand and resilience on the other are partly due to the different results from the two different surveys used within the monthly employment report. But a split screen in the job market could make the Fed’s job of figuring out how to set policy even more difficult.
“Even when you zoom out and look at the labor market, the numbers still show that the labor market is very strong,” said Gennady Goldberg, rates strategist at TD Securities, who said the Fed would “skip.” Expect. And raise interest rates this month.
“I think the Fed still has some room to tighten given the upside projections in the latest jobs report. The Fed has tough talks ahead in June.”
Some Fed officials have already backed forgoing a rate hike in June to give them more time to see how higher borrowing costs and heightened uncertainty combine to hold back the economy. It has said. Philadelphia Federal Reserve Bank President Patrick T. Harker said: said this week “We are definitely considering not raising rates at this meeting,” he said.
And in a hint that a moratorium might be coming, key officials emphasized earlier this week that halting rate hikes does not mean the Fed will stop raising rates altogether.
Fed Governor Philip Jefferson, who was nominated by President Biden to be Fed Vice Chairman, said, “The decision to keep the policy rate steady at its next meeting should not be construed to mean that the highest interest rate of the cycle has been reached.” Stated. , in comments speech this week.
“Certainly forgoing a rate hike at its next meeting would allow the Commission to see more data before making a decision on the extent of additional policy enhancements,” Jefferson added. Fed Vice Chairs have traditionally been key communicators for the Fed, telling them what core officials think about future policy directions.
Investors seem to think the new jobs report could complicate the Fed’s June picks.they pushed up After examining the likelihood of a rate hike this month after the report, based on financial market pricing, the Fed still sees only a one-in-three chance of a move.
As the Fed prepares to debate whether to raise borrowing costs or keep them unchanged, officials will need to consider other data on the economy.Headline inflation data released last week are stronger than economists expected, officials receive new CPI inflation report that day The June 13th and 14th meetings will begin.
