Report to Show U.S. Hiring Still Strong; WSJ Interviews Minneapolis, Chicago and Cleveland Fed Chiefs By James Christie
Good day. The labor market's strength presents a challenge to the Federal Reserve. The central bank last month raised its benchmark federal-funds rate by a quarter percentage point to a range between 5% and 5.25%, its 10th consecutive increase aimed at taming high inflation. Fed officials had hoped to see higher borrowing costs cool the economy by now, curbing wage and price increases. The Labor Department is due to release the May jobs report at 8:30 a.m. Eastern time. For more insight into what some Fed officials are thinking about the economy, we have transcripts of recent interviews by Wall Street Journal reporter Nick Timiraos of three regional Fed bank presidents. Links to the transcripts are provided below.
Now on to today's news and analysis.
Top News Jobs Report Expected to Show Unemployment Still Historically Low
Friday's jobs report will show whether the labor market remained resilient in May in the face of rising interest rates and elevated inflation.
Economists surveyed by The Wall Street Journal estimate that U.S. employers added 190,000 jobs in May. That would be a modest slowdown from April's gain of 253,000 and the 29th straight monthly increase. They expect that the unemployment rate ticked up to 3.5% in May from 3.4% in April, which matched the lowest reading since 1969.
Robust Jobs Market Poses Threat to Stocks' Rally Hike in May and Go Away? Harker Says Yes, at Least for June.
Federal Reserve Bank of Philadelphia President Patrick Harker doubled down on his calls for the Fed to skip an interest-rate hike at the coming June Federal Open Market Committee meeting. "It's time to just at least hit the stop button for one meeting and see how it goes," Harker said Thursday during an appearance at a National Association for Business Economics event. Skipping a rate increase would better allow officials to evaluate how previous Fed actions and recent events are impacting overall economic activity, Harker said. "We shouldn't be reacting, meeting by meeting, measurement by measurement. That's not good policy," he said. "We are close to the point where we can hold rates in place and let monetary policy do its work to bring inflation back to the target in a timely manner." (Barron's)
Transcripts
Wall Street Journal reporter Nick Timiraos recently interviewed three regional Federal Reserve bank presidents. Here are partial transcripts.
Minneapolis Fed President Kashkari on the Economic Outlook Chicago Fed President Goolsbee Discusses the Economic Outlook Cleveland Fed President Mester on the Economic Outlook U.S. Economy Senate Approves Deal Raising Debt Ceiling, Averting U.S. Default
The Senate passed sweeping legislation that suspends the $31.4 trillion debt ceiling while cutting federal spending, backing a bipartisan deal struck by President Biden and House Speaker Kevin McCarthy to avert a U.S. default.
Debt-Ceiling Bill Alters Environmental Law, Boost to Energy Projects
The debt-ceiling bill that passed the House makes some of the most far-reaching changes to U.S. environmental law in decades, potentially accelerating new renewable-energy investments championed by the White House.
Business Is Slowing. So Companies Are Juicing Profits.
Businesses' nontraditional earnings metrics are beating reported earnings by a lot more than last year, and a measure of the likelihood of earnings manipulation is at its highest level in about 40 years.
Key Developments Around the World Bank of Mexico in No Hurry to Start Cutting Rates, Minutes Show
The Bank of Mexico will likely keep interest rates on hold for a prolonged period to allow tight monetary conditions to work on bringing inflation down further, according to minutes of the central bank's May meeting.
NATO Faces Pressure on Clear Membership Path for Ukraine
Foreign ministers of the North Atlantic Treaty Organization gathered in Norway Thursday to prepare for their annual summit as pressure to give Ukraine explicit security guarantees and a path to alliance membership grows.
Violent Clashes Trigger Fears of New War in Europe
U.S. Is Willing to Begin Nuclear Arms Dialogue With Russia
The Biden administration is prepared to begin talks without preconditions with Moscow on steps to limit nuclear arms after the New Start treaty expires in 2026, national security adviser Jake Sullivan plans to say in a speech Friday.
Financial Regulation Roundup New Borrowing Hurdles Leave Small Businesses in Limbo
Some entrepreneurs are finding it more difficult to get a new loan or have had existing credit lines cut. Others report stricter terms, higher borrowing costs, longer waits and tougher questions from their bankers.
SVB Securities Prepares Management Buyout Backed by Baupost
The investment banking business tied to Silicon Valley Bank is preparing a management buyout that has the backing of Seth Klarman's hedge fund, Baupost Group, according to people familiar with the matter.
Forward Guidance Friday (all times ET)
8:30 a.m.: U.S. employment report for May
Monday
4 a.m.: Eurozone Services PMI for May
4:30 a.m.: S&P Global / CIPS UK Services PMI for May
5 a.m.: European Union producer-price index for May
10 a.m.: ISM Report on Business Services PMI for May
Research Tight Labor Market Puts Pressure on ECB Despite Falling Inflation
Eurozone inflation numbers will continue to come down in the coming months, but with the labor market still substantially tight, the question is whether the European Central Bank can be convinced inflation will slow all the way to its 2% target, Nordea economists Tuuli Koivu and Anders Svendsen write in a note. Unemployment fell in April to a record low of 6.5%, implying wage pressures are likely to contribute to service inflation in the coming quarters, the economists write. A fresh EU commission survey also indicates a lack of labor force continues to be a severe hindrance to economic growth, they add. The numbers and broader economic data will most likely convince the ECB to notch up two 25 basis-point interest rate increases in June and July, they write.
-Edward Frankl
Bullard Analysis Finds Monetary Policy in 'Much Better Shape Today'
Federal Reserve Bank of St. Louis President James Bullard studies whether monetary policy is sufficiently restrictive to bring inflation down to the Fed's 2% target, in a new post on his bank's website [https://urldefense.com/v3/__https://www.stlouisfed.org/publications/regional-economist/2023/june/is-monetary-policy-sufficiently-restrictive__;!!F0Stn7g!E4fyn_PTHrvcEEocBjRMm3QwEOqc7CF7jJ_N8vz5RHWVbgu8p7tU-kPz5zIrPIDdzYmuX9cwkhl_mXZAHKWnTARcJe-mVOnpLYezu-VS$ ]. He uses a set of monetary-policy rules, which prescribe at what level a central bank should set interest rates based on macroeconomic conditions, to examine if the Fed's 10 rate increases since March 2022 are enough to tackle inflation. The rules he uses suggest the central bank's benchmark federal-funds rate fell well short of where the policy rate should have been set through much of 2021 and 2022, but this year has moved closer to the rules' recommendations. Since the Fed has raised rates aggressively starting in early 2022, "monetary policy is now at the low end of what is arguably sufficiently restrictive given current macroeconomic conditions," Bullard writes. "Monetary policy is in much better shape today with the policy rate at a more appropriate level than it was a year ago, according to this analysis." Still, inflation remains too high, Bullard says. "An encouraging sign that inflation will decline to 2% comes from market-based inflation expectations, which had moved higher in the last two years but have now returned to levels consistent with the 2% inflation target," he writes. "The prospects for continued disinflation are good but not guaranteed, and continued vigilance is required."
-Michael Maloney
Commentary Commercial Real Estate Can Be a Problem for Banks, and a Solution
Banks must find ways to boost yields, especially if deposit costs are beginning a lengthy catch-up to higher interest rates, and a key question is whether there will be enough creditworthy loans to make, Telis Demos writes.
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06-02-23 0715ET
