Daily Commentary BY THE CURVE TEAM –

Data Casts Doubt Over FOMC

5th of June, 2017

Cracks have been creeping into Fed rhetoric in recent weeks, and doubts over the timing of the FOMC’s next move intensified Friday night following the latest employment data. One the surface, the new low in the unemployment rate at 4.3% would be enough to see the FOMC hike next week without a second thought. However other indicators are not as convincing.

Total jobs growth for May came in at 138,000, well short of the 182,000 that was expected. Adding to the downside was a 66,000 negative revision for the previous two months, taking April’s increase to 174,000 and March’s down to 50,000.

Despite constantly reiterating that the FOMC sees the first quarter’s dip in activity as transitory, the data so far for the second quarter is suggesting otherwise. It hasn’t just been the employment data with the uptrend in the inflation data also fading.

Tying all of this together is the fact that despite the unemployment rate continuing to trend down well below what would normally be considered full employment, wage growth remains absent. This is largely due more and more Americans leaving the workforce.

The data undermines the FOMC’s outlook and assessment of the economy through the lens of its mandate. While the unemployment rate suggests that one component of their mandate is being filled, other employment indicators and the inflation data suggest otherwise.

The market still expects the FOMC to hike next week. However it is far less fait accompli than it was a month or two ago. If they do hike, we could see the outlook for further moves watered down a bit.

David Flanagan

Director - Interest Rate Markets