Jobs Report Could Keep Fed on Track for 0.75-Point Rate Rise in July

The figures follow others that have fanned fears the economy might be slowing more sharply and raising the risk of a recession, but Friday’s data could put those worries to rest for now.

The Fed raised its benchmark rate by 0.75 point last month, the largest such increase since 1994, to a range between 1.5% and 1.75%. Officials at the June meeting were united about raising the rate to at least 3% by the end of this year if the economy performs as they anticipate.

Minutes from that meeting, released Wednesday, indicated officials were weighing either a half-percentage-point or 0.75-point rate increase at their meeting July 26-27, but most officials who have spoken publicly since the meeting have indicated they are prepared to support the larger of the two moves.

The June employment report “just reaffirms that the economy is strong, and there is still a lot of momentum in the labor market,” said Atlanta Fed President

Raphael Bostic

in a CNBC interview Friday. He said the Fed could raise rates by 0.75-point at its next meeting “and not see a lot of protracted damage to the broader economy.”

The jobs report is unlikely to influence the debate significantly because Fed officials have said they are more focused on monthly inflation readings right now. To ease concerns about high inflation, Fed officials would like to see slower growth in jobs and wages and a pickup in the growth of the labor force.

At their meeting last month, most officials projected that the unemployment rate would rise slightly over the next two years.

Consumer prices rose 6.3% in May from a year earlier, according to the Fed’s preferred gauge, the personal-consumption expenditures price index. Core prices, which exclude volatile food and energy categories, rose 4.7% in May. The Fed seeks annual average inflation of 2%.

A separate measure, the consumer-price index, has been running higher, climbing 8.6% in May—a new 40-year high. That report played an important role in shifting officials to a faster pace of rate rises last month, according to the minutes released Wednesday.

Investors have been looking for clues that the central bank might dial back its rate-rise expectations amid recent data pointing to slower growth in consumer spending. More aggressive responses to inflation in recent weeks by the Fed and other central banks have coincided with rising recession fears, declining commodity prices and a drop in investors’ expectations of future inflation as implied by yields on certain U.S. government securities.

But Fed officials in recent days have indicated that they feel compelled to follow through on the policy steps they have signaled because they believe those public messages have helped reduce price pressures.

“The Fed still has to follow through to ratify the forward guidance previously given, but the effects on the economy and on inflation are already taking hold,” St. Louis Fed President

James Bullard

said during remarks Thursday in Little Rock, Ark.

Write to Nick Timiraos at [email protected]

The figures follow others that have fanned fears the economy might be slowing more sharply and raising the risk of a recession, but Friday’s data could put those worries to rest for now.

The Fed raised its benchmark rate by 0.75 point last month, the largest such increase since 1994, to a range between 1.5% and 1.75%. Officials at the June meeting were united about raising the rate to at least 3% by the end of this year if the economy performs as they anticipate.

Minutes from that meeting, released Wednesday, indicated officials were weighing either a half-percentage-point or 0.75-point rate increase at their meeting July 26-27, but most officials who have spoken publicly since the meeting have indicated they are prepared to support the larger of the two moves.

The June employment report “just reaffirms that the economy is strong, and there is still a lot of momentum in the labor market,” said Atlanta Fed President

Raphael Bostic

in a CNBC interview Friday. He said the Fed could raise rates by 0.75-point at its next meeting “and not see a lot of protracted damage to the broader economy.”

The jobs report is unlikely to influence the debate significantly because Fed officials have said they are more focused on monthly inflation readings right now. To ease concerns about high inflation, Fed officials would like to see slower growth in jobs and wages and a pickup in the growth of the labor force.

At their meeting last month, most officials projected that the unemployment rate would rise slightly over the next two years.

Consumer prices rose 6.3% in May from a year earlier, according to the Fed’s preferred gauge, the personal-consumption expenditures price index. Core prices, which exclude volatile food and energy categories, rose 4.7% in May. The Fed seeks annual average inflation of 2%.

A separate measure, the consumer-price index, has been running higher, climbing 8.6% in May—a new 40-year high. That report played an important role in shifting officials to a faster pace of rate rises last month, according to the minutes released Wednesday.

Investors have been looking for clues that the central bank might dial back its rate-rise expectations amid recent data pointing to slower growth in consumer spending. More aggressive responses to inflation in recent weeks by the Fed and other central banks have coincided with rising recession fears, declining commodity prices and a drop in investors’ expectations of future inflation as implied by yields on certain U.S. government securities.

But Fed officials in recent days have indicated that they feel compelled to follow through on the policy steps they have signaled because they believe those public messages have helped reduce price pressures.

“The Fed still has to follow through to ratify the forward guidance previously given, but the effects on the economy and on inflation are already taking hold,” St. Louis Fed President

James Bullard

said during remarks Thursday in Little Rock, Ark.

Write to Nick Timiraos at [email protected]