The jobs report is not expected to affect the Fed’s interest rates

Federal Reserve policymakers focus heavily on the strength of the labor market as they debate how much the economy needs to cool off to ensure rapid inflation returns to normal. New labor market data released on Friday will probably do little to dissuade them from raising interest rates at their meeting this month.

The June data is the last jobs report officials will have before the central bank’s July 25-26 meeting. He highlighted several labor market themes that have been around for months: Although job growth is gradually slowing, wage growth is still abnormally fast and the unemployment rate is very low at 3.6%.

Investors widely expected The Fed raised rates at its July meeting even before the report, and June data reinforced that expectation. And many paid particular attention to the wage data: average hourly earnings rose 4.4 percent in the year to June, versus a forecast of 4.2 percent, and wage gains for May were revised higher. After months of slowdown, earnings numbers have been roughly flat since March.

“Overall, it is strong enough for the Fed to think it still has more work to do,” said Michael Jabin, chief US economist at Bank of America, explaining that the report contained both early signs of weakness and signs of continued strength. “. “Employment is cold, but the job market is still hot.”

Fed officials are watching wage data closely, as they worry that if wage growth remains unusually fast, it could make it difficult to fully return high inflation to the 2 percent target. Logic? When companies better compensate their workers, they may also raise their rates to cover higher wage bills. At the same time, families who earn more will be able to afford higher prices.

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Federal Reserve officials were surprised at the economy’s viability after 16 months as they sought to slow it down by raising interest rates, making it more expensive to borrow money and aiming to cool consumer and business demand. Growth is slower, but the housing market has begun to stabilize and the job market has remained abnormally strong Opportunities galore And at least some bargaining power for many workers.

This resilience — together with the stubbornness of rapid inflation, especially for services — is why policymakers can expect to keep raising interest rates, which they have already raised above 5 percent for the 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 gatherings. But many policymakers have been clear that even as the pace moderates, they still expect to raise interest rates further.

Laurie K. said: Logan, President of the Federal Reserve Bank of Dallas: “It might make sense to skip a meeting and move incrementally.” during a speech This week, noting that it is important for officials to follow through by continuing to raise interest rates.

“Inflation and the labor market evolving more or less as expected won’t really change the outlook,” she added.

Federal Reserve officials expected in June They will raise interest rates twice more this year – assuming they move in quarter-point increments – and the job market will weaken, but only slightly. they saw High unemployment rate to 4.1 percent by the end of the year.

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Policymakers won’t release new economic forecasts until September, but Wall Street will watch how policymakers react to economic developments to gauge whether another move is likely this year.

“Job growth has slowed but remains too strong to warrant a prolonged Fed pause,” said Seema Shah, chief global strategist at Principal Asset Management, explaining that the new data gave the Fed “little reason” to delay the July increase. The question is what happens next.

Right 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 two-year Treasury notes, which is affected by changes in investors’ expectations for future interest rates, fell to about 4.9 percent, from more than 5 percent. The move reflected part of the relief for investors that the jobs numbers did not follow a string of other data this week that beat expectations.

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

This month, one of Wall Street’s widely watched recession indicators, which compares short- and long-term government bond yields, sent its strongest signal since the early 1980s that deflation was approaching.

But Fed officials aren’t sure. Austin Goolsby, President of the Federal Reserve Bank of Chicago, said Friday on CNBC that lowering inflation without triggering a recession would be a “victory.”

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“This is the golden road – and I feel we are on that golden road,” said Mr. Goolsby.

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