US job growth is expected to slow in June – but not fast enough to dissuade the Federal Reserve from resuming rate hikes later this month.
Economists polled by Bloomberg had forecast that the US economy added 225,000 new non-farm jobs last month, down from the previous month’s plentiful figure of 339,000 but still comfortably above the pre-pandemic average.
The unemployment rate is also expected to remain near a multi-decade low, falling again to 3.6 percent after a slight rise in May.
Official data will be released by the Bureau of Labor Statistics at 8:30 a.m. ET on Friday.
Employment and wage growth are major drivers of inflation, particularly in the services sector. Friday’s numbers will be scrutinized by investors, economists and central bank officials, who are watching for evidence that the Fed’s rate hike is starting to take its toll on the economy.
Although headline inflation numbers have started to trend lower, the labor market has proven resilient, with economists underestimating the strength of payroll growth for 14 straight months.
Hourly wage growth is expected to slow to 4.2 percent year-on-year. That would be a two-year low, but still well above the 3.5 percent rate that most economists believe is consistent with the federal inflation target of 2 percent.
The central bank held interest rates steady at its last policy meeting in June to give officials more time to assess the impact of previous interest rate hikes and the potential impacts of recent turmoil in the banking sector.
However, policymakers made it clear that they are not yet done with the monetary tightening campaign, with most officials expecting two more quarter-point rate hikes by the end of the year.
Futures markets are pricing in a roughly 90 percent chance of a rate hike at the next Federal Reserve meeting in late July, and Citi economists predicted that even a sub-consensus headline number of around 170,000 “is still strong enough for the Fed.” Raising rates in July”.
Separate private sector payrolls data published on Thursday reinforced those expectations, pushing the two-year Treasury yield to its highest level since 2007.
However, Drew Matos, chief market strategist at MetLife Investment Management, said, “If [officials] They were sure that if they needed to move again, they would have done so at the last meeting. There was some doubt in their minds about what they were seeing.”
“Any increase in the unemployment rate beyond last month’s figures may lead some to think about how emboldened they want to be when they are just starting to see the impact of previous hikes,” Matos added.
Additional reporting by Colby Smith in Washington