The US labor market is still hot. The NFP report, released Friday, showed the addition of 272,000 jobs in May, crushing analyst estimates.
Such a departure from consensus is likely to have a substantial impact on the Federal Reserve. This increase indicates continued momentum in the labor market.
As a result, the central bank, which has been closely monitoring employment data, could see strong job growth as a reason to hold off on interest rate cuts.
The increase in the unemployment rate to 4.0% may seem counterintuitive given the significant job growth, but it is nevertheless a nuanced indicator that could reflect changes in labor force participation or other demographic shifts within the U.S. economy.
What economists say about the NFP report
bank of America: “The bottom line is that the stronger-than-expected May employment report remains consistent with our monetary policy outlook to remain steady. This report showed solid wage gains with positive implications for consumer spending.”
“We expect the Fed to remain on the sidelines for now and start a gradual austerity cycle in December, which will depend on a moderation in inflation rates. The economy may be cooling, but it is not cool.”
TD effects: “The FOMC is widely expected to keep the Fed funds target unchanged at 5.25%-5.50%, with Chairman Powell likely to deliver a similar policy message to May.”
“The risk, however, is that the chairman may appear somewhat optimistic given the recent evolution of the US consumer market, and if the May CPI report shows further progress on inflation. We also look for the dot plot that shows two cuts as the median for 2024 and four cuts as the median for 2024. for 2025.”
Evercore ISI: “Within broad limits, inflation rates, not jobs numbers, will determine whether or not the Fed cuts in September.”
Investec“Our base case is a start of easing in September, with the Fed gradually lowering policy rates from there. The actual decision at next week’s meeting probably won’t cause too many surprises, but we’ll be on the hunt for clues as to whether our The idea of where interest rates are headed is consistent with the Fed’s.”
Jefferies: “The bottom line is that the Fed is still firmly on hold. Next week’s CPI is likely to print +0.1%/+0.3%, and we see some upside for a +0.2% in the headlines. A cut in July is also likely a pipe dream, and things are unlikely to fall apart quickly enough for a cut before September.”
“We continue to expect one cut in 2024, likely in November or December, depending on how the Fed handles the election results.”
UBS“This report appears likely to continue to strengthen FOMC participants’ assessments of the resilience of the expansion. It also jeopardizes our expectation that the June SEP has a median of 2 points for 2024. However, there are other reasons why the FOMC is sticking with the option of a September rate cut and keeping market prices between one and two cuts , while they wait for more data.”
Citi: “We are moving our base case for a first rate cut from July to September based on 272,000 job creations 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 labor demand, and the broader economy, is slowing and that this will ultimately prompt the Fed to respond with a series of cuts beginning over the next few months.”
