Payrolls to test second quarter climate for Fed

Sun May 3, 2015 4:16am EDT
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By Mike Peacock

LONDON (Reuters) - Always top of the data pile, this week will be no exception for the U.S. jobs report with a first interest rate rise likely this year despite a dramatic slowdown in the first quarter.

After a harsh winter brought U.S. growth almost to a halt in the first three months of 2015, April's non-farm payrolls report, due on Friday, will signal whether the world's largest economy is faring any better in the second quarter.

The Federal Reserve has put in place a meeting-by-meeting approach on the timing of its first rate hike since June 2006, making such a decision solely dependent on incoming economic data.

Last week it downgraded its view of the U.S. labor market and economy, suggesting it may wait until late in the year to begin raising rates.

"They will need better data to justify a rate hike, and that need is pushing the timing of a policy change ever-deeper into 2015," said Tim Duy, a professor at the University of Oregon and a noted Fed watcher.

"There just isn't that much data between now and June to move the needle on policy. You need the jobs and inflation data to turn sharply better to pull the Fed back to June."

The Fed has kept rates near zero since late 2008. A weak jobs report would cement expectations that there will be no tightening until September and possibly later.

Whenever the first U.S. rate increase comes, investors need only look back to the "taper tantrum" of 2013 when the central bank declared it would slow its bond-buying program to see the potential for volatility in financial markets.   Continued...

Pedestrians walk past the Federal Reserve Building in Washington April 3, 2012.  REUTERS/Joshua Roberts