“The hopes for pre-election Federal Reserve easing were seemingly dashed again with last Friday’s employment data,” Jefferies, a multinational investment bank and financial services firm, said in its ‘Greed and fear’ report, dated June 13.
Nonfarm payrolls in the US increased by a whopping 272,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said, as per reports.
While the government and healthcare/social assistance sectors accounted for 126,500 of the overall increase, Jefferies.
The headline data was again above expectations though it is worth noting that the government and healthcare sectors again accounted for a chunky 47 per cent of the jobs generated.
“They have been running at an average 60 per cent in the past 12 months, reflecting the impact of fiscal easing,” Jefferies report read.Touching upon the combined impact of employment and inflation in the US, the investment bank now expects a lower degree on interest rate cut in the US this year.”If the inflation data is somewhat encouraging for the Fed, the net result of the employment and inflation data points is that money markets are now expecting 47 bp (basis points) of Fed rate cuts this year, as opposed to 50bp before both sets of data were announced,” Jefferies asserted.
During the latest Federal Reserve policy meeting held earlier this month, the central bank officials hinted that they are now expecting just one 25 basis points rate cut this year and 100 basis points of rate cuts in 2025, compared with 75 basis points of rate cuts for each of 2024 and 2025 anticipated back in March.
Inflation is set to remain a real issue in the upcoming Presidential election in the US, which is due to be held on November 5.
Consumer price inflation in the US continued to trend down, though it remained above 2 per cent, and it a pain point for its central bank. In the 12 months through May, the inflation increased 3.3 per cent year-on-year.
Faced with high inflation, the US Federal Reserve, in its latest monetary policy meeting, voted to leave the key interest rate unchanged at 5.25-5.50 per cent, maintaining the policy rate for the seventh straight time on the trot.
During the COVID-19 pandemic, the interest rates were near zero. The central bank seeks to achieve maximum employment and inflation at the rate of 2 per cent over the longer run.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
