May’s positive jobs report could increase the chances of an interest rate hike this year by the Federal Reserve, according to market observers.CME’s FedWatch increased chances of a rate hike by the end of December at almost 70%, compared to 52% before the latest figures.The market still expects rates to remain steady at the 3.50%-3.75% range after the June meeting.The report in question showed that job growth surged beyond expectations in May, according to new data from the Bureau of Labor Statistics.Concretely, nonfarm payrolls climbed
172,000 last month, more than twice the figure expected by the Dow Jones consensus. April’s figure was revised upwards to 179,000.The unemployment rate stood at 4.3%, in line with expectations. “Among the major worker groups, the unemployment rates showed little or no change in May for adult men (4.0 percent), adult women (3.8 percent), teenagers (14.7 percent), and people who are White (3.8 percent), Black (6.6 percent), Asian (3.8 percent), or Hispanic (5.0 percent),” the report noted.Average hourly earnings climbed 0.3% compared to the previous
month and 3.4% in an inter-annual basis, also in line with expectations. Inflation stood at 3.8% in April, largely as a result of energy-related spikes resulting from the war in Iran, meaning that wage growth is lagging price increases.Leisure and hospitality led the increase with 70,000 roles, much higher than the 14,000 monthly average from the past year. Local government also added 55,000. Healthcare added 35,000 jobs and social assistance 12,000. Among the weaker sectors were financial services, which shed 22,000 jobs, and the transportation/warehousing
industry.June’s Fed meeting will be the first under the leadership of Kevin Warsh. Minutes from the latest meeting showed that officials are also growing more uneasy about the state of U.S. financial markets, warning that elevated asset prices, opaque private credit markets, and debt-fueled artificial intelligence investment could leave the economy vulnerable.Fed staff said asset valuation pressures remained elevated, while several policymakers warned that lofty prices increased the risk of a sudden market reversal if bad news hits. Officials also raised concerns about private credit,
a fast-growing corner of finance that is harder for regulators to monitor because many loans are made outside traditional banks.The report pointed to a broader anxiety inside the central bank over whether the Fed’s emergency tools are strong enough, and whether a new leadership era could change how aggressively the central bank responds to financial stress.Warsh has criticized some of the Fed’s crisis-era policies, including large-scale asset purchases, and has favored a smaller balance sheet. The Fed’s own May Financial Stability Report echoed several of
those concerns. It said Treasury market liquidity deteriorated during periods of heightened volatility tied to Middle East geopolitical risks, showing how quickly market functioning can become vulnerable during stress.
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