- Nonfarm payrolls increased by 272,000 jobs in May, according to US figures.
The US Federal Reserve could keep interest rates unchanged for the rest of 2024, following much stronger-than-expected labor market data.
Nonfarm payrolls increased by 272,000 jobs in May, according to the U.S. Department of Labor’s Bureau of Labor Statistics, exceeding forecasts of 120,000 to 185,000.
The United States faces stubbornly persistent consumer price inflation, which stood at 3.4 percent in April, as the labor market and broader economy continue to show strength against the impact of previous Federal Reserve rate hikes.
Markets believe the Fed is unlikely to follow the ECB with rate cuts next week
U.S. Treasury yields and the dollar rose while stocks fell on the data, as investors pushed back expectations about when the Fed’s first rate cut will occur.
David Goebel, investment strategist at wealth manager Evelyn Partners, said: “Overall, labor demand in the United States continues to look strong, and ‘soft’ or even ‘no’ landing (economic) scenarios look even more likely.
‘Before today’s data, money markets were suggesting that the first rate cut by the Federal Reserve would take place in September or November, but that probability has now reduced.
“However, today’s jobs report paints a picture of a labor market that is in good health and can provide a backdrop for continued stock market strength.”
Investors now all but rule out any chance that the Federal Reserve will cut rates at its June 12 and July 31 meetings, while predicting just a 50 percent chance that rates will fall at its September meeting, according to the CME FedWatch tool.
And markets believe there is about a 10 percent chance that the Federal Reserve will keep its key interest rate range at its current level of 5.25 to 5.5 percent by the end of the year.
Neil Birrell, chief investment officer at Premier Miton Investors, said: “It appears the economy is still moving at a considerable pace, which is bad news for anyone confident the Federal Reserve will cut rates soon.”
“After this figure, the end of the year could be the closest time for the Federal Reserve to follow rate movements in Canada and the Eurozone.”
The European Central Bank and the Bank of Canada opted to preempt the Federal Reserve with their first rate cuts earlier this week, but expectations that the Fed will wait longer will likely weigh on the pace of easing by either. the banks.
But Hetal Mehta, head of economic research at wealth manager St. James’s Place, warned that it is “hard to see the Fed cutting rates even in December if this trend continues.”