Job market slowdown, rising wages may fit Fed's playbook

Fri May 6, 2016 3:52pm EDT
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By Howard Schneider

WASHINGTON (Reuters) - A slowdown in U.S. hiring coupled with a jump in wages last month dovetails with what the Federal Reserve expected as the economy approaches full employment and is not likely to alter its interest rate hike trajectory.

The Labor Department reported on Friday that 160,000 jobs were added in April, short of the 215,000 expected by economists and below the recent monthly average of 200,000, tempering hopes of a strong economic rebound in the second quarter.

Although some investors viewed the report as a red flag for the U.S. central bank, the influential head of the New York Fed said the he wasn't too concerned by the data and that two interest rate hikes this year were still a "reasonable expectation."

"It's a touch softer, maybe, than what people were expecting, but I wouldn't put a lot of weight on it in terms of how it would affect my economic outlook," New York Fed President William Dudley told the New York Times.

The Fed signaled in March it expected to raise rates twice this year, though prices in the fed funds futures market suggest investors see just one increase in 2016.

Some analysts said the data, especially if the rise in wages triggered higher inflation, could push the U.S. central bank closer to hiking rates, perhaps as soon as June.

"Employment was never going to continue rising at more than 200,000 a month indefinitely. Those monthly gains are simply unsustainable," said Paul Ashworth, chief U.S. economist for consulting firm Capital Economics.

Indeed, Fed officials had since late last year warned of a slowdown in hiring, noting that monthly gains of 100,000 jobs would be adequate to keep the pace of economic growth aligned with population growth. Fed Chair Janet Yellen made that point in December.   Continued...

David Wallace (L) of Lockheed Martin interviews an applicant at a job fair for veterans and their spouses held by the U.S. Chamber of Commerce and the Washington Nationals baseball club at Nationals Park in Washington December 5, 2012. 
 REUTERS/Gary Cameron