Interest Rate Hike in June May Not Be Out of Question, Despite Weak March Jobs Data

Fed Rate HikeWhile many pundits started speculating that the Federal Reserve will not go for a June or July interest rate hike following weak jobs statistics for the month of March, two of the central bank’s more hawkish officials said Wednesday that an early summer rate increase might still take place after all. However, this will be predicated on economic data to be released in the coming two months.

Last week, March’s employment statistics were released, showing that unemployment remained at 5.5 percent, but that only 126,000 jobs were created that month, or less than half the jobs created in many of the months prior. But New York Fed President William C. Dudley and Fed Governor Jerome H. Powell said Wednesday that there may be circumstances that would justify a Fed rate hike taking place in June, followed by a gradual increase in interest rates going forward.

“I could imagine circumstances where a June rate hike could still be in play,” said Dudley, who is closely allied with Fed Chairwoman Janet L. Yellen. “If the economy’s strong, the unemployment rate is dropping, wages are rising, and the outlook is good, you could conceivably get to that point.”

In a separate set of prepared comments, Powell told the Council on Foreign Relations in New York that the Fed may start its rate hikes even with inflation still well below the central bank’s target, but, like Powell, added that the Fed may take it slow when it comes to hiking rates, pursuant to a proper recovery from the late 2000s financial crisis.

“You cannot wait until you see the goal posts coming because monetary policy works with these long lags,” he said, adding that the Fed would have more guidance by way of economic stats, as far as rate hike timing is concerned.

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Most economists now expect the Fed to announce its first interest rate increase sometime in September, which is a slightly more bearish forecast than what futures traders currently expect. Prior to Dudley and Powell’s comments, traders predicted that Fed officials may decide to hike rates by December, but had changed that expectation to October in the light of the recent comments from both Fed movers-and-shakers.