The American job market continues to defy predictions. As investors search for any clue about the Federal Reserve's next rate path, May's jobs report reinforced the idea of a still-strong economy. A reading shared by Beth Hammack, president of the Cleveland Fed, who judges the labor market to be generally balanced and believes that the economy remains close to full employment. Such statements could weigh on monetary expectations for the coming months.
In brief
- Beth Hammack believes that the US labor market remains broadly balanced after the release of the May jobs report.
- The latest data shows job creation above expectations and an unemployment rate remaining stable.
- The president of the Cleveland Fed considers that the economy is still operating at a level close to full employment.
- Despite the strength of the labor market, the Federal Reserve's attention remains focused on the evolution of inflation.
An employment report that reinforces the strength of the labor market
Beth Hammack was quick to react after the publication of the American employment report for the month of May. According to her, the data revealed on June 5 confirm that the labor market remains “overall balanced”.
The head of the Cleveland Fed also declared that “the American economy is still evolving around a level that it considers to be close to full employment”. These comments come as non-agricultural job creation reached 172,000 jobs in May, a result higher than economists' expectations. At the same time, the unemployment rate remained stable at 4.3%, reflecting a situation which does not show any obvious signs of deterioration.
The data published paint a relatively stable picture of the American labor market:
- 172,000 jobs were created in May;
- The unemployment rate remained unchanged at 4.3%;
- Beth Hammack believes that the labor market remains balanced;
- Nothing in the report suggests, in his view, a sudden deterioration in employment conditions.
Fed's focus remains on inflation
If the employment figures caught the attention of investors, Beth Hammack also suggested that the real issue lies elsewhere. Thus, his intervention underlines that the central question for the Federal Reserve remains the evolution of inflation.
Judging that the labor market is still balanced and that the economy is around full employment, the head of the Fed push aside the idea of a rapid deterioration in activity which would require an immediate response from the central bank. Her analysis follows a line already expressed in previous interventions, during which she indicated that the risks linked to inflation continued to deserve particular attention.
This reading changes the way markets interpret upcoming monetary policy decisions. When employment slows sharply, investors often anticipate a faster easing of financial conditions to support growth. The observation made by Beth Hammack goes in a different direction.
In the absence of signs of marked weakness in the labor market, the central bank can continue to focus its efforts on price stability. Financial operators, thanks to on-chain data, are now monitoring less the strength of employment than the capacity of inflation to converge towards the objective set by the Fed.
For the markets, this nuance is far from trivial. An economy that can maintain strong employment levels provides monetary policymakers with more flexibility as they evaluate their next decisions. Investors in stocks, bonds and cryptos will therefore continue to analyze each economic publication through the prism of a labor market considered balanced, but of a battle against inflation which remains open.
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