Job numbers in focus as Fed hints at a ‘skip’
Federal Reserve officials have indicated they could keep rates stable at their upcoming meeting in June — pausing after a series of 10 consecutive rate hikes to give themselves time to see how the economy develops. But Friday’s new jobs numbers will likely inform policymakers as they try to decide whether now is the right time to take a break.
Central bankers raised interest rates to a range of 5 to 5.25 percent sharply up since last month from near zero at the start of 2022. But they’ve been signaling for months that it may soon be appropriate to take a break from rising rates so they can assess how the economy is holding up to big policies absorbs changes they have already made and the impact of other developments, such as the impact of the recent banking turmoil.
Higher interest rates cool the economy by making it more expensive to borrow to buy a house or finance a car, but it takes time to take full effect. As rates rise, companies gradually backtrack on expansion plans, delaying hiring, which then leads to weaker wage growth and an overall slower economy.
That’s why policymakers are watching labor market data to find out how higher interest rates work. They had expected hiring to slow down, wage growth to slow down and unemployment to start rising – but that took time.
Some Fed officials prefer to postpone a rate hike in June so they have more time to see how higher borrowing costs and heightened uncertainty combine to slow the economy. Patrick T. Harker, the president of the Federal Reserve Bank of Philadelphia, said this week that he is “definitely in camp thinking about skipping a raise in this meeting.”
Others have underlined that while the Fed is about to pause its campaign to cool the economy, that doesn’t mean it’s done raising interest rates.
“A decision to keep our policy rate constant at an upcoming meeting should not be interpreted as a sign that we have peaked for this cycle,” said Philip Jefferson, a Fed governor selected by President Biden to be Vice Chairman of the Federal Reserve. become an institution. , during a speech this week.
“Indeed, skipping a rate hike at an upcoming meeting would allow the committee to see more data before making decisions on the extent of additional policy tightening,” Mr Jefferson added. The Fed Vice Chairman has historically been a key communicator for the institution, broadcasting how core officials feel about the future policy path.
But even as the Fed heads toward a possible pause this month, officials will be taking incoming data into account on the economy. A key inflation figure released last week came in firmer than economists had expected, and officials will receive a new consumer price index inflation report the day that their June 13-14 meeting begins.
Friday’s jobs report could confirm — or, if abnormally strong, cast doubt on — whether a skip makes sense.