The US job market is still hot. The NFP report released Friday showed 272,000 jobs were created in May, beating analysts’ estimates.
This departure from consensus would likely have a significant impact on the Federal Reserve. This surge suggests robust dynamics in the labor market.
As a result, the central bank, which closely monitors employment figures, may view strong job growth as a reason to delay cutting rates.
A rise in the unemployment rate to 4.0% may seem counterintuitive given the strong job growth, but it is a subtle indicator that could reflect changes in the labor force participation rate or other demographic shifts in the U.S. economy.
What economists say about the NFP report
Bank of America: “The bottom line is that the stronger-than-expected May jobs report remains in line with our monetary policy forecast, which remains unchanged. This report showed strong wage growth with positive implications for consumer spending.”
“We expect the Fed to remain unchanged for now and begin a tapering cycle in December, which will depend on moderation in inflation data. The economy may be cooling, but that’s not cool.”
TD Securities: “The FOMC is expected to keep the Fed’s fund target range unchanged at 5.25%-5.50%, and Chairman Powell is likely to provide May with a similar policy message.”
“The risk, however, is that the chairman appears somewhat optimistic given recent trends in US consumer demand and if the May CPI report shows further progress in inflation. We also expect the scatter plot to show two declines as the median for 2024 and four for 2025.”
Evercore ISI: “Broadly, inflation data, not employment data, will determine whether the Fed cuts rates in September or not.”
Investek: “Our base case assumes easing begins in September, with the Fed gradually lowering interest rates. The actual decision at next week’s meeting is unlikely to provide too many surprises, but we will be looking for clues as to whether our view of where rates are heading matches the Fed’s view.”
Jeffries: “The bottom line is that the Fed remains committed to its position. Next week’s CPI is likely to be +0.1%/+0.3% and we see some upside for +0.2% in the headline news. The July cut is also likely a pipe dream, and it’s unlikely that things will fall apart quickly enough before September for that to be cut as well.”
“We still expect 1 cut in 2024, likely in November or December, depending on how the Fed responds to the election results.”
YBS: “This report appears to continue to strengthen FOMC participants’ assessments of the sustainability of the expansion. It also threatens our expectation that the June SEP will have a median value of 2 points for 2024. option to cut the rate in September and keep market prices at the level of one or two cuts while they wait for more data.”
City: “We are moving our base case scenario for the first rate cut from July to September, given that 272,000 new jobs will be created in May, well above consensus. We now expect the overall rate cut this year to be 75 bps. in September, November and December.”
“But the jobs report doesn’t change our view that labor demand and the overall economy are slowing, and that this will ultimately trigger the Fed to respond with a series of cuts starting over the next few months.”