Jobs Report Not Expected to Affect Fed Interest Rates

Federal Reserve policymakers are focusing heavily on the strength of the labor market as they debate how much more cooling the economy needs to do to ensure that volatile inflation slows back to a normal pace. New labor market data released Friday likely offered little to stop them from raising interest at their meeting this month.

The June data is the last payrolls report officials will receive before the central bank’s July 25-26 meeting. It underscored several themes in the labor market that have been present for months: Although job growth is gradually slowing, wage growth remains abnormally fast and the unemployment rate is low very much at 3.6 percent.

Investors had widely expected the Fed to raise rates at its July meeting even before the report, and June data reinforced that prediction. Many paid particular attention to the salary data: Average hourly earnings rose 4.4 percent in the year through June, compared to an expectation for 4.2 percent, and wage gains for May changed higher. After months of slowdown, earnings numbers have remained steady since March.

“On balance, it’s strong enough for the Fed to think they have more work to do,” said Michael Gapen, chief U.S. economist at Bank of America, explaining that the report contained which are signs of early weakness and signs of continued strength. “Hiring is cooling, but the labor market is still hot.”

Fed officials are closely watching the wage data, because they are concerned that if wage growth remains unusually fast, it could make it difficult to bring high inflation fully back to their 2 percent goal. . The logic? If companies pay their workers well, they can also raise their prices to cover their high wage bill. At the same time, families with higher incomes are better able to afford higher prices.

Fed officials have been surprised by the staying power of the economy 16 months into their push to slow it by raising interest rates, making borrowing more expensive and intended to cool consumer and business demand. Growth is slower, but the housing market is beginning to stabilize and the job market remains abnormally strong with many opportunities and at least some bargaining power for many workers.

That stability – along with the persistence of rapid inflation, especially for services – is why policymakers expect to continue raising interest rates, which they have already raised above 5 percent in first time in about 15 years. Officials raised rates in smaller increments this year than last year, and they skipped a rate move at their June meeting for the first time in 11 meetings. But many policymakers are clear that even if the pace of change, they still expect to increase interest rates.

“It may make sense to skip a meeting and move more slowly,” Lorie K. Logan, the president of the Federal Reserve Bank of Dallas, said during a speech this week, while noting that it was important for officials to follow up by continuing to raise rates.

He added that “inflation and the labor market developing more or less as expected will not change the outlook at all.”

Fed officials predicted in June that they would raise interest rates twice more this year — assuming they would move in quarter-point increments — and that the labor market would soften, but only slightly. They saw the unemployment rate rise to 4.1 percent by the end of the year.

Policymakers won’t release new economic projections until September, but Wall Street will monitor how lawmakers react to economic developments to see if another move this year is likely. .

“Jobs growth has slowed but remains strong enough to justify an extended Fed pause,” said Seema Shah, chief global strategist at Principal Asset Management, explaining that the new The data gave the Fed “little reason” to hold off on a July hike. The question is what happens afterwards.

For now, investors see another rate hike after July as possible but not guaranteed, and the June jobs report did little to change that.

The yield on the two-year Treasury bond, which is sensitive to changes in investors’ expectations for interest rates going forward, fell to around 4.9 percent, from more than 5 percent. The move reflected a partial relief among investors that the jobs numbers did not follow a series of other data points this week that beat expectations.

Some on Wall Street expect the economy to soften more in the coming months, which could prompt the Fed to hold back on future rate moves. It usually takes months or years for higher borrowing costs to have their full economic impact, so more slowdowns may be in the pipeline.

This month, one of Wall Street’s most watched recession indicators, which compares yields on short-term and long-term government bonds, sent the strongest signal since the early 1980s that an improvement is coming.

But Fed officials aren’t so sure. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said Friday on CNBC that lower inflation without a recession is a “victory.”

“That is the golden path — and I feel that we are on that golden path,” said Mr. Goolsbee.