The US job market is still hot. The non-farm payrolls report, released on Friday, showed 272,000 jobs added in May, crushing analysts' estimates.
This divergence from consensus is likely to have a significant impact on the Fed. This rise indicates continued momentum in the labor market.
As a result, the central bank, which has been closely monitoring employment numbers, may see strong job growth as a reason to delay the start of interest rate cuts.
The unemployment rate rising to 4.0% may seem counterintuitive given the large job gains, but it is an accurate indicator that may reflect changes in labor force participation or other demographic shifts within the US economy.
What do economists say about the NFP report?
American bank: “The bottom line is that the stronger-than-expected May employment report remains consistent with our expectations for monetary policy to remain unchanged. This report showed strong gains in payrolls with positive implications for consumer spending.”
“We expect the Fed to remain flat for now and begin a tapering cycle in December that will depend on moderation in inflation data. The economy may be cold, but it is not cold.”
TD Securities: “The FOMC is widely expected to keep the Fed funds target range unchanged at 5.25%-5.50%, and Chairman Powell is likely to deliver a similar policy message for May.”
“However, the risk is that the Chairman will sound a bit too optimistic given the recent development of the US consumer, and if the May CPI report shows further progress in inflation. We also look to the dot plot to show two reductions as an average for 2024.” And four reductions for 2025.”
Evercore ISI: “Within broad ranges, it is inflation data, not jobs data, that will determine whether the Fed cuts interest rates in September.”
Investec“Our base case is to start easing in September, with the Fed gradually moving interest rates lower from there. The actual decision at next week's meeting is unlikely to cause many surprises, but we will be looking for clues as to whether “Our original decision would have raised more surprises.” “The idea of where interest rates are going matches the Fed's idea.”
Jefferies: “The bottom line is that the Fed remains on hold. Next week's CPI is likely to be +0.1%/+0.3%, and we see some upside to +0.2% on the headline. “A cut in July is a pipe dream change, and things are unlikely to unravel quickly enough before September to make a cut as well.”
“We still expect one cut in 2024, most likely in November or December depending on how the Fed handles the election results.”
UPS: “This report seems likely to continue to bolster FOMC participants’ assessments of expansion resilience. It also jeopardizes our expectations that the June September report will have a 2-point average for 2024. However, there are other reasons for the FOMC to hold “The open market has the option of cutting interest rates in September and keeping market rates between one or two cuts while they wait for more data.”
City: “We are changing our base case for a first rate cut from July to September on the basis of 272,000 new jobs well above consensus in May. We now expect 75 basis points of total cuts this year in September, November and December.”
“But the jobs report does not change our view that employment demand and the broader economy are slowing and that this will eventually prompt the Fed to respond with a series of cuts starting in the next few months.”
