As Federal Reserve officials weigh whether and when to cut interest rates this year, they are hoping for signs that the job market is starting to cool but unemployment remains low.
The jobs report released Friday brought bad news on all fronts.
According to the report, both hiring and wage growth accelerated in May. This could increase fears that the labor market remains too hot to fully control inflation.
However, unemployment rose slightly, reaching 4 percent for the first time in more than two years. This suggests that high interest rates may be starting to take their toll in the form of increased job losses.
Policymakers will meet next week to weigh the economy’s conflicting signals. Interest rates are widely expected to remain unchanged at around 5.3 percent, their highest level in decades. The same goes for their next meeting in July.
What happens next is much less certain. Investors believe there is about a 50 percent chance the Fed will cut interest rates at its September meeting, but that probability has steadily worsened in recent months as inflation has proven more stubborn than that policymakers had hoped.
Fed officials are paying particular attention to wage growth, which has fallen since the heady days of 2021 as companies sought to quickly hire workers as the economy reopened after the pandemic. But wages are still rising significantly faster than before the pandemic, and while policymakers don’t believe this is a major cause of recent price increases, they fear it will be difficult to fully control inflation if Wage growth does not slow any further.
“If wage increases are higher than productivity would justify, then there will be inflationary pressures,” Jerome H. Powell, the Fed chairman, said at a news conference after the central bank’s last meeting in May. He said policymakers had seen “progress” on wages, but “we still have ways to get there.”
Data released on Friday showed that average hourly wages, a measure of wage growth, rose 4.1 percent in May compared to a year earlier. The pace was faster than in April and faster than forecast. Combined with much stronger than expected job growth, this could make Fed officials more worried that the job market remains too hot – and therefore more reluctant to cut interest rates.
But the rise in unemployment could give some policymakers pause. So far, the Fed’s rate-hiking campaign has brought remarkably little pain in the form of job losses, and the unemployment rate remains low even after the slight increase in May. But historically, once the unemployment rate increases even slightly, it tends to continue to rise.
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2024-06-07 13:29:59
www.nytimes.com
