By Ann Saphir
Recent data from the Labor Department has shown a cooling in the labor market, with the unemployment rate rising to 4.1% in June. This could give Federal Reserve policymakers more confidence in their fight against inflation, potentially leading to a discussion on interest-rate cuts at their next meeting in late July.
The average monthly payroll gain over the past three months has decreased to 177,000, below the 200,000 mark estimated by Fed Governor Lisa Cook. Additionally, average hourly earnings were up 3.9% from a year earlier, signaling a slowdown in price pressures.
While the Fed is not expected to change its policy rate at the upcoming meeting, the new data could pave the way for a rate cut in the future. Chief US Economist of High Frequency Economics, Rubeela Farooqi, believes that a rate cut could be on the horizon if the data continues to show moderation.
However, Fed Chair Jerome Powell has stated that any rate cut would depend on achieving their 2% inflation target and unexpected weakening in the labor market. The increase in the unemployment rate, while still below levels historically associated with a recession, is a cause for concern.
Investors will be closely watching Powell's address to Congress for insights into the Fed's policy path. Financial markets are already pricing in a September rate cut, with a second cut potentially in December.
Overall, the recent data points to a potential shift in Fed policy towards rate cuts, which could have significant implications for the economy and financial markets. Investors should stay informed and be prepared for potential changes in interest rates that could impact their investment strategies.