Calling last month’s weak jobs report “concerning,” U.S. Federal Reserve Chair Janet Yellen has indicated that Fed officials may be reconsidering hiking the benchmark interest rate again “in the coming months.”
The markets had been expecting the Fed to take another step in its “gradual easing” of monetary policy in June or July. The Federal Open Markets Committee is having its next meeting June 14 and 15.
A few weeks ago, Yellen used the phrase “in the coming months” when referring to the possible timing of another rate hike. On Monday, however, she made no reference to timing in a speech that was generally positive about economic conditions but cited the weak job growth in May as a negative.
“Recent signs of a slowdown in job creation bear close watching,” she told the World Affairs Council of Philadelphia, going on to describe the May jobs report as “on balance, concerning.”
“I continue to believe that it will be appropriate to gradually reduce the degree of monetary policy accommodation, provided that labor market conditions strengthen further and inflation continues to make progress toward our 2% objective,” Yellen concluded.
Fed-watchers said Yellen’s comments pretty much put the nail in the coffin of a rate increase in June — and beyond. “The risk that bothered the market early in the year was that the Fed would push too hard to hike, and squash the economic recovery,” Bill Stone, chief investment strategist at PNC Asset Management Group, told CBS News. “Now June’s off the table, and July is pretty questionable as well.”
“Economists now see September or possibly July as the most likely time for a quarter-point policy tightening, while traders in futures markets are betting on later in the year,” Reuters reported.
Yellen said the positive signs on the labor front include significant job gains, an unemployment rate below 5%, rising household incomes, and “tentative signs of faster wage growth.” She also expressed optimism about inflation, citing the recent rally in oil prices and some weakening of the dollar against a broad basket of currencies since the start of the year.