A humming U.S. job market offers the Federal Reserve no cause for concern.
The European Central Bank (ECB) has commenced changing its interest rate policy. The US isn't quite there yet. The economy is still generating enough jobs, so the Fed doesn't need to make adjustments. Meanwhile, inflation is still too high. In the meantime, investors are keeping an eye on the latter half of the year.
The U.S. job market is sizzling despite the central bank's hawkish interest rate policy. In May, there were more jobs created than predicted, with 272,000 new jobs outside of agriculture, as per the government's labor market report. Economists had forecasted 185,000 new jobs, revised to 165,000 (previously: 175,000) in April. The separate unemployment rate rose in May to 4.0%, a level not seen in 27 months. Experts had speculated it would remain at 3.9% as it was in the previous month.
The fact that the four percent mark was reached could have a psychological impact, according to Tobias Basse, an analyst at NordLB. The cooling of the labor market is seen as a crucial element for the central bank to meet its two percent inflation target on a sustainable basis.
There's particular focus on wage growth. The increase in May was higher than expected at 4.1%. From Basse's perspective, this could become a problem for the Fed: "Now, more and more signs are emerging that suggest a deteriorating job market in the land of supposedly limitless opportunities."
The United States Federal Reserve is currently maintaining high-interest rates to suppress inflation. At the same time, they aim to cool the heated job market without harming the economy. According to a rough estimate, a job growth of around 100,000 per month is enough to provide jobs for the growing U.S. workforce. Currency specialists are likely to keep the benchmark rate at 5.25 to 5.50% on Wednesday. Key Fed representatives have indicated, in light of persistent inflation, that it will take several more months before a change in interest rate policies is even considered. The probability of a rate cut in September, based on the robust job data, was reduced to 55%. Previously, it was 70%.
The European Central Bank (ECB) completed its interest rate turnaround on Thursday and issued the necessary signals beforehand. It's currently much closer to its two percent inflation target of 2.6% than the Fed, which is currently grappling with an inflation rate of 3.4%. Experts anticipate the U.S. inflation rate to remain at 3.4% in May. "For the Fed, interest rate policy is still on hold," says the conclusion of economist Bastian Hepperle from Hauck Aufhäuser Lampe Privatbank.
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The USA's economic situation remains strong, with the Federal Reserve not needing to alter its interest rate policy due to a robust labor market. Despite this, inflation continues to exceed the Fed's target, leading to ongoing discussions about potential changes.
In contrast, the European Central Bank has completed an interest rate turnaround, bringing its inflation rate closer to its target, while the Fed battles with a higher inflation rate of 3.4%.
The Fed's goal is to maintain high interest rates to curb inflation and cool the heated job market, aiming for a job growth of around 100,000 per month to keep up with the growing U.S. workforce.
