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Jobs report tells Fed: Stop forcing rate hikes

Both theory and measurement have been saying that holding off until inflation is actually happening is the right course for the Fed.

This month’s employment report gave markets a lot of uncertainty, but one thing got much clearer — and that’s probably a good thing. It’s never a good idea to read too much into a single report, but a lot was wrapped up in this one.

With inflation and inflation expectations clearly in check, the conspicuous mention of a possible June rate hike in the late April Federal Open Market Committee statement was perplexing to many experts. But the same could arguably be said about the December rate hike, which did happen, so we were right to worry.

The FOMC meets Tuesday and Wednesday for a discussion and a vote on whether to raise the federal funds target rate.

This employment report makes that rate-hike case exceptionally hard to make, because perceptions have changed — and it was always a tough sell on the basis of fundamentals. This report doesn’t make the probability of a recession more objectively likely, but the job-creation number missed expectations so badly that raising rates seems much more reckless than it did last week.

It highlights that there is no need to raise rates, and that there are real economic risks to doing so.

The above excerpt was originally published in MarketWatch. Click here to view the full article.

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Michael Madowitz