After Friday’s jobs report, Fed chair Janet Yellen may be buying her FOMC colleagues a round of drinks — but is the news still enough for a rate hike?
According to Steven Englander, Citi’s global head of G10 FX strategy, the May jobs report “is the best of all possible worlds for the Fed.”
Englander wrote in a note to clients:
This is the best of all possible worlds for the Fed. Very good numbers, plus some signs that labour force is finally responding as well as wages. In a better world they would be raising rates in June but the weakness in aggregate demand in Q1 is likely to hold them back.”
The BLS reported a growth of 280,000 nonfarm payroll jobs, beating Wall Street’s expectations of 226,000. Yet, the unemployment rate still unexpectedly rose to 5.5%.
The rise is attributed to an increase in the labour force participation rate, implying that economic conditions have led to more Americans landing jobs.
Englander says the Fed should welcome this as a sign that “[the] labour force is finally responding as well as wages.” But Englander thinks the weak aggregate demand from the first quarter will prevent the Fed from raising rates this month. Plus, the jobs numbers are weak enough that the Fed won’t feel pressured to go ahead just yet if they aren’t ready.
From his note:
Interesting question is whether this is enough to put June back on table. Purely on the basis of labour data, I would think yes, but [the Fed is] likely to be concerned on demand side, so will take a pass. Recent Fed speakers have sounded very cautious — Brainard, Tarullo — so likely still no deal, even if objectively there is a real case on strong NFP and strong retail. (That said, Tarullo’s concern was the lack of bounceback from Q1 so this may reassure him).