The New York Stock Exchange saw traders busy on June 03, 2024, with May’s surprising job growth and wage rise contributing to the belief that the Federal Reserve will maintain its current interest rates for the foreseeable future. The Bureau of Labor Statistics reported a significant increase of 272,000 nonfarm payrolls for the month, surpassing the Wall Street consensus of 190,000. Average hourly earnings also rose by 4.1% over the past year, indicating a robust labor market. This data suggests that the Fed does not need to rush to lower interest rates, especially as inflation remains above the 2% target.
The Fed’s “dual mandate” of full employment and stable prices seems to be in balance, with unemployment rising to 4% in May but the labor market still appearing strong. Inflation, on the other hand, remains above the Fed’s target, with most measures indicating an annual increase of around 3%. Despite this, futures traders have reduced their expectations of rate cuts following the positive jobs data. Pricing in fed funds futures now shows little chance of a rate reduction at upcoming FOMC meetings, with only a 50-50 probability of a cut in September.
Rick Rieder, chief investment officer of global fixed income at BlackRock, believes that conditions are ripe for the Fed to start cutting the policy rate by 25 basis points in September, with potentially one more cut later in the year. Citigroup, on the other hand, expects the Fed to wait until September to begin cutting rates, but then continue with a series of rate reductions in response to a slowing economy. Both analysts agree that inflation readings will play a key role in determining the Fed’s next move.
Overall, the strong job growth and wage rise in May have given the Federal Reserve room to keep interest rates steady for the time being. While inflation remains a concern, the labor market appears healthy, leading to reduced expectations of rate cuts in the near term. However, investors should continue to monitor economic indicators and inflation readings to anticipate potential future moves by the Fed.
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