The June employment report gives the Federal Reserve a green light to continue to raise interest rates at what’s been shown to be its preferred once-every-three-months pace, economists said Friday.
“I don’t think [the June report] suggests they go faster. I don’t think it suggests they go slower,” said Michael Gapen, chief U.S. economist at Barclays.
The central bank can carry on with plans to raise interest rates in September and December and three times next year, he said.
Labor Department data showed the economy added 213,000 jobs in June, but the unemployment rate moved back up to 4%. That’s the first rise in the unemployment rate since last summer.
Read: Job growth up 213,000 in June, down from 244,000 in May
Minutes of the Fed’s June meeting showed officials believe this pace will put rates at “neutral” sometime next year. That is the level of interest rates that is neither boosting nor dampening growth.
If rates get to neutral it would be a sea change for Fed policy, ending more than a decade of Fed policy designed to be propping up the economy.
Read: Fed shows no sign of pausing rate hikes
Treasury yields slipped a bit after the data. The 10-year Treasury note yield fell TMUBMUSD10Y, -0.45% 1 basis point to 2.81%. Gapen said he thought the market had been worried about a stronger report that might put pressure on the Fed to speed up the pace of rate hikes.
The employment report showed that wage growth rose at a 2.7% pace over the past 12 months. That was below market expectations and in line with the moderate gains seen over the past year.
“It means there isn’t a potentially inflationary problem that they need to get on top of,” Gapen said.
Some Fed officials will argue that the report shows the economy has further room to run, he noted.
Gregory Daco, chief economist at Oxford Economics, agreed the report indicates the Fed has not been too slow to raise interest rates.
“This data is perfect for the Fed,” Daco said.
“I don’t think the central bank is behind the curve. Their assumption that inflation will stabilize around 2% seems confirmed by the wage data,” he said.
