Even if fewer jobs were created in June than expected, the labor market in the USA remains stable. The Federal Reserve is therefore likely to raise interest rates again in view of the inflation.
Despite the Federal Reserve’s interest rate hikes, the US labor market is largely healthy and companies are creating many new jobs. Outside of agriculture, 209,000 new jobs were created in June, according to the government in Washington. However, economists had expected 225,000 new jobs.
Also in May, revised only 306,000 jobs were added and not 339,000 jobs as originally reported. Although some analysts spoke of disappointing data, a further rate hike by the Fed is still considered agreed. Job creation continues to be well above the mark that is necessary for stable labor market conditions due to demographic trends. Unemployment has also fallen, while wages continue to rise noticeably.
Will the last rate hike for the time being come at the end of July?
“Even if the labor market cools down, it will probably remain too strong from the point of view of the US central bank,” explained Commerbank expert Christoph Balz. “The Fed is likely to raise interest rates again this month.” The US monetary authorities had massively tightened monetary policy in order to curb high inflation and cool down the overheated labor market. The key interest rate range is currently 5.0 to 5.25 percent.
In June, the Fed took a break after ten hikes in a row, but at the same time announced further tightening. The further development of the economy is decisive, according to many central bankers. The labor market is robust overall, said chief economist Alexander Krüger from the private bank Hauck Aufhäuser Lampe. “The Fed is likely to push this further in the direction of a rate hike.”
According to the job data, the US financial market estimated the chance of a further interest rate hike by the end of July by 0.25 percentage points to around 90 percent. However, market participants were more skeptical about further possible steps. They only see the probability of an increase in November at around one in three.
Thomas Gitzel, chief economist at VP Bank, believes it is possible that the tightening of monetary policy that is generally expected at the end of July will be “the final rate hike”. Because “first gentle cracks” in the hitherto robust labor market in the USA are recognizable.
“Handsome wage increases” of more than four percent
Meanwhile, the separately determined unemployment rate in the USA fell slightly in June, as expected, to 3.6 from 3.7 percent in May. According to a rule of thumb among economists, an increase of 70,000 to 100,000 jobs per month is enough to provide jobs for the growing US working-age population.
A major issue for the Fed is wage development, because sharp increases can give rise to additional inflationary risks. Average hourly earnings rose 4.4 percent yoy in June, after a revised 4.4 percent in May. Experts surveyed by the Reuters news agency only had an increase of 4.2 percent on the slip. Compared to May, average hourly wages increased by 0.4 percent and thus maintained the pace of the previous month.
Helaba expert Ralfcircul spoke of “considerable wage increases”. The Fed will therefore stick to the planned interest rate hike in July and “keep all options open depending on the development of the data”.