As the debate intensifies around potential interest rate cuts, the relatively muted U.S. labor numbers for May provide a backdrop for Federal Reserve Board Chair Jerome Powell to reconsider the anticipated three 25-basis point rate cuts later this year. The Department of Labor's report, released on June 6, indicated that hiring remained stable in May, with employers adding 139,000 jobs. Although this figure is slightly higher than expected, it marks a decline from April's performance. The unemployment rate held steady at 4.2%, aligning with the expectations of most economists.
In terms of sector performance, the leisure and hospitality and healthcare sectors reported the highest job gains, while the federal workforce experienced one of the lowest. Notably, both the manufacturing and retail sectors reported job losses, highlighting the ongoing impact of the Trump administration's trade wars on the global economy. These trends underscore the challenges that the Federal Reserve faces as it navigates economic policy amidst fluctuating labor market conditions.
President Trump, just days prior to the jobs report, criticized Powell on Truth Social, labeling him as “unbelievable” and a “disaster” for not lowering interest rates. Trump argues that the current rates are suffocating economic growth. His frustration was exacerbated by the payroll firm ADP's report, which revealed that private-sector firms added only 37,000 jobs in May—the lowest total in over two years. In light of this data, Trump demanded, “Too Late, Powell must now LOWER THE RATE.”
Minutes from a meeting held by Federal Reserve Bank leaders in early May, released on May 29, indicated that the central bank voted to conduct open market operations “as necessary” to maintain the federal funds rate within a target range of 4.2% to 4.50%. In a related decision, the Board of Governors of the Federal Reserve System unanimously approved maintaining the primary credit rate at 4.5 percent. This means that interest rates for lenders, consumers, and the broader American population are unlikely to change in the near term, further fueling Trump’s vitriolic criticism of Powell.
Despite President Trump's vocal demands for a rate cut, market participants are increasingly skeptical about the likelihood of such measures occurring soon. The CME's FedWatch tool, which is closely monitored by market analysts, showed a decrease in the odds of an interest rate cut this summer. As of June 6, the probability that the Fed Funds Rate would be in the 4% to 4.25% range by July fell to 16.5%, down from 30.4% the previous day. This marked a significant decline from nearly 57% just a month prior.
Chris Versace from The Street noted that the market may need to reassess its expectations regarding the anticipated three 25-basis point rate cuts. With Atlanta Fed President Raphael Bostic indicating that he sees room for only one rate cut based on recent data, it seems likely that more Fed officials will align with this perspective. Versace also suggested that Bostic's comments may help set the stage for the Fed’s upcoming economic projections, which are to be published alongside its next policy decision on June 18.
As the economic landscape continues to evolve, all eyes will be on the Federal Reserve as it grapples with these complex challenges and the implications for future monetary policy.
