Investing.com – A solid U.S. employment report for the month of April pushed up the odds that the Federal Reserve (Fed) will hike rates in June, though markets still remained skeptical that the central bank will tighten twice this year.
Non-farm payrolls (NFP) rose by 211,000 in April, handily beating expectations for the creation of 185,000 jobs and more than doubling the weak creation seen in March.
Furthermore, the jobless rate unexpectedly dipped to 4.4%, its lowest level since May 2007.
Allianz chief economic adviser Mohamed El-Erian commented that it was a solid report with the exception of the slight dip in the participation rate.
“The jobs report for April is consistent with the view that weak first quarter data is temporary and reversible, and that the Fed will be tempted to hike in June,” he said.
Yet, ING economists seemed to differ in their opinion, pointing out another negative factor in the fact that the annual wage growth slipped to 2.5% from 2.6%, despite the fact that the 0.3% matched consensus.
“The fact that we are still quite a way away from 3% wage growth means that there is no real pressure on the Fed to accelerate the pace of interest rate hikes,” they said.
Even so, they admitted that the rebound in employment offers support to the Fed’s view that weak first quarter growth was “transitory”.
“This would suggest the (Fed) members’ forecasts that they will hike rates by 25 basis points on two, possibly three more occasions this year, still holds,” they concluded.
Peter Boockvar, chief market analyst at The Lindsey Group, considered the creation of private sector jobs to be less than expected, but even that observation failed to convince him that the Fed’s intentions to tighten policy would be derailed.
“Bottom line, looking solely at the private sector, the 3 month job gain was slightly less than expected but the continued fall in the U3 and U6 unemployment figures locks in a June rate hike, I believe, as the Fed is very reactive,” Boockvar commented.
Analysts at Think Markets believe that April’s report gives the Fed the all clear to move forward.
“The fact is that as long as the U.S. NFP number stays between 150,000 and 250,000, the Fed is not going to change their current narrative much,” they said.
“Any number in this range pretty much supports Fed’s stance who thinks that the labor market will improve further,” these analysts explained.
After the report, Fed fund futures put the odds of a hike in June at 74.1%, according to Investing.com’s Fed Rate Monitor Tool, compared to 70.6% prior to the release.
However, the chance of a second hike this year in December remained below the 50% threshold at around 47%.
Markets still looked ahead Friday to the first official string of appearances by Fed members after the central bank left rates unchanged this week and gave an upbeat outlook on the economy.
Six policymakers including Fed chair Janet Yellen and vice chair Stanley Fischer may give markets further confirmation of plans to hike rates in June or hints on when they might begin balance sheet normalization.
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