Will Fed interest rate rises be restricted to just one for the rest of this year? Job growth in May was just 138,000 – 47,000 less than expected for the month. While Wall Street has a strong belief that the Federal Reserve will increase interest rates during the FOMC meeting on June 13-14, what happens after June is unclear.
Few had doubted that the Fed would have two more rate hikes this year – in fact, the Fed has stated this itself. However, the disappointing job growth figures have raised doubts as to whether this is now possible. It is currently unclear what is causing this. Traditionally, a slow rate of new job creation is signed either of a slowdown in the economy or a tightness in the labor market.
Overall, the figures appear to indicate that the jobs market is tightening. Although hiring is slow, the unemployment rate has dropped to 4.3%, the lowest figure in 16 years. Wages are also increasing (2.5% in May on an annual basis,) which does not signify a slowing economy. These factors signify that the expected rise in Fed interest rates should take place as planned. This would be the third rate hike since December. But what of the rest of the year?
The disappointing new jobs figure, along with a fall in the rate of inflation and a drop in vehicle sales, indicate that perhaps the expected September Fed interest rate increase might not happen. Some believe it will, while others believe there will be no further increase until the FOMC meeting on December 12-13. Others still question whether there will be any more increases this year after June.
Vehicle sales remained below the annualized rate of 17 million vehicles in May – the third month in a row below this level. The index on inflation used by the Federal Reserve, the core price index, dropped to 1.5% in the 12-month period to April. This was the smallest 12-month gain since December 2015. It is also below the Fed’s target of 2%.
Figures, including low job growth, indicate that traders believe there to be a 96% chance of a Fed interest rate rise in June, but only 25% of a rate increase in September. A December hike seems to be 50/50. Others put the June rise at 90%, but some think it is delayed until September or October. Will there be one Fed Interest rate increase this year – or more?
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