US jobs, wages data keeps Fed on track to raise interest rates

A solid employment report with stronger-than-expected wage growth for June keeps the Federal Reserve on track to raise interest rates this month and mull another rise as soon as September.

Non-farm payrolls increased 209,000 last month, less than economists expected, and job gains over the prior two months were revised lower, a Bureau of Labor Statistics report from Friday shows. The unemployment rate fell to 3.6 per cent. Average hourly earnings rose 4.4 per cent from a year earlier, and the average workweek edged up.

“Overall, the job market is outstanding, and is getting back to a balanced, sustainable level,” Chicago Fed president Austan Goolsbee on Friday told CNBC.

Goolsbee, who votes on policy decisions this year, stopped short of endorsing a rate rise in July, saying officials still had a couple more weeks of data to assess before their next gathering. But he pointed to policymakers’ median forecast for two more rate rises this year, saying, “I haven’t seen anything that says that’s wrong”.

“We have to figure out when, but there are some modest increases to come,” Goolsbee said. “But we’ve done a lot of the lifting and now we’re waiting for the impact.”

Almost all Federal Open Market Committee participants last month saw the need to raise interest rates further in light of persistent inflation and a tight labour market, according to minutes of their June 13-14 meeting released on Wednesday. Traders maintained near-certainty that the Fed will raise interest rates at its July 25-26 gathering, while they had slightly less conviction for policymakers’ September and November meetings.

‘I still expect at least two hikes this year with this kind of momentum in the economy and these kinds of persistent wage gains.’

Diane Swonk, chief economist at KPMG LLP in Chicago

“Clearly this is a green light for the July meeting,” said Vincent Reinhart, chief economist at Dreyfus and Mellon who previously spent a quarter of a century working at the Fed. “I think September’s an open question. There’s uncertainty about what they will do down the line.”

Central bankers are likely to be particularly wary of signs of wage growth quickening, which some officials see as potentially feeding into higher prices that are inconsistent with their 2 per cent inflation target.