Ever since the Federal Reserve first raised interest rates from zero percent last December, it has pledged that any future change “will depend on the economic outlook as informed by incoming data.” For the Fed, that data is job creation. And the data wasn’t encouraging last month.
For weeks this spring, investor expectations were growing that the central bank was feeling confident enough to raise interest rates again ever so slightly — by one-quarter of 1 percent. Coupled with its hike in December, that would put the Fed’s target interest rate at 1/2 percent — still incredibly low by any standard.
And the Fed’s key data was giving it the excuse it needed to raise rates. Before May, the American economy was adding an average of about 180,000 jobs each month this year. That was after averaging over 200,000 jobs each month in 2015.
But in May, U.S. companies were just not hiring like they had been. Only 38,000 new jobs were added, marking the job market’s slowest month since the end of the Great Recession. And that data point alone likely will delay any interest rate hike beyond when the Fed meets for two days during the week ahead.
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The central bankers are not about to reverse course, though, and back off the desire to raise interest rates. Gradually increasing interest rates helps prep the Fed to fight any future economic trouble. It is their most important and useful tool to hope to fend off a slowdown, or worse, a recession. Stock investors, though, don’t mind the wait. The Standard & Poor’s 500 index is hovering near a record high.
Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami, where he is the vice president of news. Follow him on Twitter @HudsonsView.