Jobs blowout gives Fed pretext for .75% rate hike in July July 8, 2022
(Reuters) - Another blowout jobs number will likely stiffen resolve at the Federal Reserve for a three-quarter-point interest rate increase at the central bank's July meeting, as the welcome news of a still-strong job market clashes with concern that it will eventually have to cool to ease inflation.
The U.S. economy added 372,000 jobs in June, a far larger-than-expected number that pushed private employment back above its pre-pandemic level and kept the unemployment rate at an ultra-low 3.6%.
While the jobs data is likely to cool speculation of an impending recession, it could fuel uncertainty about whether the Fed will need to become more aggressive in using higher interest rates to slow the economy and bring consumer inflation down from the current 40-year high of more than 8%.
"I am fully supportive of moving 75 basis points" at the July meeting, Atlanta Fed president Raphael Bostic said on CNBC. "This report just reaffirms that the economy is strong and that there is still a lot of momentum in the labor market, and that is a good thing."
But that very strength, paired with "sky-high" inflation, could help make the case for further, aggressive rate hikes.
"We must be resolute, and we cannot fall short" in returning inflation to the Fed's 2% target, New York Fed President John Williams, who also cited an "incredibly tight" labor market, said on Friday in Puerto Rico.
Though Williams did not specifically call out his preferred rate-hike path, he made clear the Fed will battle inflation even at the cost of much slower economic growth and a rise in unemployment to "somewhat" more than 4%. Williams forecast growth at under 1% this year.
Both Williams and Bostic said they were seeing some early signs of the kind of slowdown that could help ease inflation without a deep hit to employment. Both promised to parse those signs against upcoming inflation reports as they weigh the risks to economic growth against the need to temper prices.
Several Fed officials have now endorsed a three-quarter-point increase at the upcoming policy meeting on July 26-27, with attention shifting to how inflation, jobs and other data respond, and what might need to happen next.
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"This calls into question...the narrative that recession is imminent," said Nela Richardson, chief economist for payroll processor ADP. "This is a bonus for the Fed. They can be aggressive."
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