2023-07-07 18:31:00
June’s U.S. jobs report showed average hourly wages rising faster than expected, suggesting the labor market is still strong. The US Federal Open Market Committee (FOMC) raised interest rates earlier this month, and it appears that the Fed remains on track to consider another rate hike as early as September.
U.S. jobs growth slows in June; wages still suggest strong labor market (3)
“Clearly the green light has been given for the July meeting,” said Vincent Reinhart, former head of the Federal Reserve’s Monetary Policy Division and now chief economist at Dreyfuss & Mellon. . “September is a moot point.
Upper row: Month-to-month change in the number of employees in the non-farm sector, Lower row: Average hourly wage (year-on-year change)
U.S. Bureau of Labor Statistics
At the FOMC meeting in June, almost all participants recognized the need for another rate hike. That’s because of persistent inflation and a tight labor market. The meeting was announced on May 5th. Markets have priced in a near-certainty of a rate hike at the Fed’s meeting on June 25-26. However, the market is a little less confident in September and November.
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FOMC officials will be particularly concerned about signs of accelerating wage growth. Some officials believe the acceleration may be driving inflation far from the 2% inflation target.
“Wage pressures have indeed accelerated,” said Diane Swonk, chief economist at KPMG. “With this kind of momentum in the economy and such persistent wage growth, we continue to expect at least two more rate hikes this year,” he said.
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Policymakers expect the economy to slow to below long-term trend levels and the unemployment rate to rise to 4.5% next year. The slack in the job market is likely to ease price pressures. The June employment report contradicted this forecast with a slight decline in the unemployment rate.
“It’s still a really strong report,” Citigroup economist Veronica Clark said of the June jobs report. He expects rate hikes in July and September. She continued, “The authorities have raised concerns about accelerating hourly wage growth and unemployment, both of which are moving in the opposite direction of expectations.”
Bloomberg Economics economists Stuart Paul and Eliza Winger said: “There are clear cracks in the labor market, with more part-time workers, layoffs in certain sectors, and expected revisions to future employment numbers. “But the FOMC, which must continue to keep inflation under control, still needs to keep the labor market under pressure, and we expect a 0.25-point rate hike at its July meeting.”
What Bloomberg Economics Says…
“Even as clear cracks emerge — increasing part-time work, layoffs in select industries, and looming payroll revisions — the Fed will need to continue leaning against the labor market to sustainably rein in inflation. We expect the FOMC to raise the federal funds rate target by an additional 25 basis points at the July meeting.”
— Stuart Paul and Eliza Winger
To read the full note, click here
Original title:Moderating Payrolls, Strong Wages Give Fed Green Light for Hike(excerpt)
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