All eyes are on Federal Open Market Committee’s June 13-14 meeting
A robust job market would seem like a good thing to many. But for Melissa Cohn (pictured), last week’s employment report is nothing short of blistering – in the full extension of the term.
Employers added a more-than-anticipated 339,000 jobs – nearly twice the number of what had been expected. The big numbers all but negate the emergence of recession. But the booming employment levels do little to stave off inflation, Cohn – regional vice president at William Raveis Mortgage – said.
“The jobs report was pretty blistering – 339,000 jobs created after the Fed raised rate 10 times consecutively,” she told Mortgage Professional America during a telephone interview. “We have this go-go economy.”
Job gains raised some eyebrows
She expounded on the point: “The resilient labor market continues to surprise the markets as rates and inflation remain high. This points to interest rates remaining higher for longer as the rate of inflation remains more than twice the 2% target level. Higher mortgage rates mean fewer buyers and borrowers – not good news for the real estate market.”
Yet the report did telegraph a possible cooling down. “The report also showed some signs of things slowing because the wages earned component was slightly lower than it was the month before and the unemployment rate went up,” Cohn said. “The rise in the actual employment rate and the fact that hourly earnings rose less than last month could be indicative of the jobs market finally slowing down.”
The bullish economy continues despite such signs of potential slowdown, she noted: “If you look at things like openings and people getting laid off – which has been mostly in the tech industry – our economy is holding up pretty well – considering the fact that the rate is almost 5% higher than it was a little over a year ago.”
Inflation might have already come down to the desired 2% were it not for those pesky job gains: “If you have a job and make money, you’re going to spend it,” she said. “If you’re spending it, it’s inflationary.”
What will the Fed do next?
All eyes are turned to the Fed, and what its next move will be: “The big question is: What does this mean for the Fed next week,” she said. “Some people say it shows the economy is holding up so the Fed should pause on raising rates – which to me sounds counterintuitive.”
Two more key reports – the Consumer Price Index (CPI) and the Producer Price Index (PPI) – are slated to be released this week. Cohn said the reports’ findings may further influence Fed action. The former report consists of indices measuring price change consumers experienced. The latter report measures the average change of time in selling prices received by domestic providers of goods and services.
“That would help the Fed make up its mind very easily,” she said. “If we see that not only is job growth strong but we could see the rate of inflation not moderating at a pace that’s acceptable to the Fed and we see retail sales remain strong, then the Fed may raise rates again. Or they may say ‘let’s take a pause for a month; we can always do double duty’.”
Her take: “I think there’s a chance the Fed may raise rates again by a quarter point,” she said. “I would think the Fed remains committed to bringing the rate of inflation down. Will it hurt anything if the Fed waits a month? Probably not. I know that everyone wants the Fed to pause on rate hikes. I don’t think the Fed’s job is done yet.”
The Federal Open Market Committee meets again June 13-14.
The bottom line: “It is hoped that the Fed will pause further rate hikes at their meeting and be forced to raise rates in July if employment doesn’t moderate.”
Released Friday, the jobs report also showed the unemployment rate in May rose from a historic low of 3.4%, to a still low 3.7% as employment declined by a net 310,000 jobs. The jobless rate is based on a survey of some 60,000 households.
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