Fed rate rise expectations pushed back

Added 3rd June 2016

A Federal Reserve interest rate rise this month is now widely considered off the table after the latest non-farm payroll number came in significantly below forecasts.

Fed rate rise expectations pushed back

The Bureau of Labor Statistics reported that 38,000 new jobs had been created within the US economy during May, undershooting analyst expectations of approximately 160,000.

Fathom Consultancy said the “shockingly-weak payrolls data” was probably a blip but should be enough to prevent a June rate hike.

The data were puzzling when set against yesterday's Employment Report, Fathom noted. This report showed that 173,000 net new jobs were created in the private sector last month. The two measures have not diverged so significantly for more than two years. This means that next month non-farm payrolls will bounce back to 150,000 plus, Fathom explained.

"We think June is now firmly off the table in terms of the next Federal Reserve interest rate hike, with our expectation for July,” said Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers. “However, post the non-farm payroll release, there is now a serious risk to a July rate hike if job creation continues to decrease."

“Overall, we think it will be difficult to put a hawkish narrative around this weak report and therefore, will cause the Fed to be more cautious about hiking, especially given Brexit risks on the horizon,” he added. “How will this effect asset valuations? We think it will be good for bonds but somewhat negative for equities and the USD."

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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