Jobs report adds new wrinkle for Federal Reserve

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The Federal Reserve was hoping for months of solid job gains that would quickly bring the economy back to peak employment – but the decent but not-great job gain in May underscored that while the labor market is recovering, progress is bumpy.

Employers added 559,000 jobs last month, below the 675,000 new jobs economists polled by Bloomberg expected. This gain would be significant in normal times, but it came after a sharp slowdown in hiring in April, and with the economy still 7.6 million jobs
below its pre-pandemic level.

The Fed is keeping a close eye on the jobs data as it assesses when to cut back on its massive bond purchases, which helps make many borrowing cheap and fuel the economy.

Central bank officials have said they need to see further “substantial” progress towards their two goals – maximum employment and stable inflation – before reducing this bond purchase. They have an even bigger obstacle to raising interest rates: They want to see a return to full employment and inflation that should stay above 2% for a while before raising rates from the lowest.

Inflation has increased this year, but Fed officials have said they expect much of the price hike to be temporary. And when it comes to jobs, many have made it clear that the economy remains well below their target.

“I expect to see further progress on employment in the coming months,” said Lael Brainard, a Fed governor. earlier this week. “Having said that, today employment remains far from our objective.”

Randal K. Quarles, Fed vice chairman for oversight, said in a recent speech that he expected the price gains to meet the Fed’s criteria for slowing bond buying later this year. But he said the job market offered reasons for patience.

Officials were hoping for a faster rebound than the one that materialized. Jerome H. Powell, the chairman of the Fed, said during a April event that “we want to see a series of months like this,” referring to a recent jobs report that showed nearly a million jobs.

While central bankers focus on jobs, investors are also being trained on the data, as they try to determine when the Fed will start cutting its purchases of government guaranteed bonds. The Fed bought about $ 120 billion in debt each month under a program called quantitative easing. These purchases tend to drive up asset prices, and the announcement of a policy change has the potential to be disruptive: Markets shook sharply when the Fed hinted in 2013 that it would slow down an investment program. post-financial crisis quantitative easing.

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