Odds of September Rate Cut Slump Again

Josh Schafer |

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The U.S. added 272,000 nonfarm payroll jobs in May, significantly more additions than the 180,000 expected by economists. Meanwhile, the unemployment rate rose to 4% from 3.9% the month prior. May's job additions came in significantly higher than the 165,000 jobs added in April. The print highlights the difficulty the Federal Reserve faces in determining when to lower interest rates and how quickly.  Overall, the economy and labor market have held up, and inflation has remained sticky, building the case for holding rates higher for longer. Yet some cracks have emerged, such as signs of inflation pressuring lower-income consumers and rising household debt. Wages, considered an important metric for inflation pressures, increased 4.1% year over year, reversing a downward trend in annual gains from the month prior. On a monthly basis, wages increased 0.4%, an increase from the previous month's 0.2% gain. The labor force participation rate slipped to 62.5% from 62.7% the month prior. However, participation among prime-age workers, ages 25-54, rose to 83.6%, its highest level in 22 years. The report comes as the stock market has hit record highs amid a slew of softer-than-expected economic data, which had increased investor confidence that the Federal Reserve could cut interest rates as of September. After the May labor report, that trend reversed, with investors pricing in a 53% chance that the Fed cuts rates in September, down from a roughly 69% chance seen just a day prior.