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Last Friday, the Non-Farm Payrolls (NFP) data disappointed market participants. As it turned out, the US economy added fewer jobs than economists expected in June, and so the US dollar took a hit.
To be more precise, economists expected 224k new jobs in June – the outcome was 208k.
Not much of a difference, right? But as it is almost always the case, the details matter more than the actual release.
This time the details of the June report showed a weakening labor market. Both April and May data were revised down, in total, by 110k. This is a lot, given how markets moved on previous reports and considering the lag between interest rate hikes and financial markets’ responsiveness.
So the lag is an issue for a central bank having a dual mandate – price stability and job creation.
If the job market, lagging as it does, shows signs of weakness, why would the Fed raise rates in July? Perhaps the private jobs data concerns the central banks, as in June, it showed the lowest gains since December 2020.
Having said that, the Fed has a tough job. After all, the US economy keeps adding new jobs, despite the increasing number of economists expecting a recession.
So can the Fed raise rates in July?
Unlikely.
Wednesday’s inflation report is key
One may say that the Fed’s job creation part of the mandate is achieved. After all, the job market’s resilience speaks for itself.
But the problem is that the unemployment rate is a lagging economic indicator. Therefore, it may just be that the job market did not have time to react to the Fed’s rate hikes.
Which gives the Fed time to focus on the other part of the mandate – price stability. This Wednesday, the June inflation report is due.
If inflation continues to come down, as suggested by other data, the Fed will have difficulty raising the rates in July. Therefore, the US dollar bearish trend will likely resume this week.
The post Will the Fed raise rates, given the weakest private jobs gain since December 2020? appeared first on Invezz.