The shock from Friday's monthly jobs report is leading Federal Reserve Chairwoman Janet Yellen to recalibrate when it comes to raising interest rates immediately.
While unemployment fell to 4.7% on Friday, the lowest point in a decade, the U.S. added just 38,000 jobs, the lowest month jobs increase since January 2011.
Yellen gave a speech Monday in Philadelphia indicating her concern about the May jobs report. She acknowledged that the country overall is reaching what the Federal Open Market Committee considers full employment, the lack of job growth is likely concerning enough that the Federal Reserve may have to pull back on the idea of raising interest rates this month.
As Yellen noted, "Over the past few months, financial conditions have recovered significantly and many of the risks from abroad have diminished, although some risks remain. In addition, consumer spending appears to have rebounded, providing some reassurance that overall growth has indeed picked up as expected. Unfortunately, as I noted earlier, new questions about the economic outlook have been raised by the recent labor market data. Is the markedly reduced pace of hiring in April and May a harbinger of a persistent slowdown in the broader economy? Or will monthly payroll gains move up toward the solid pace they maintained earlier this year and in 2015? Does the latest reading on the unemployment rate indicate that we are essentially back to full employment, or does relatively subdued wage growth signal that more slack remains? My colleagues and I will be wrestling with these and other related questions going forward."
The Federal Reserve had projected it would be raising rates this year, but the Fed officials declined to do so in March. Yet Yellen expressed the possibility that the Fed's Open Market Committee could still move to raise interest rates later this year.
"Next week, concurrent with our policy meeting, the FOMC participants will release a new set of economic projections. Those could, of course, differ from the previous set of such projections in March. But speaking for myself, although the economy recently has been affected by a mix of countervailing forces, I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones. As a result, I expect the economic expansion to continue, with the labor market improving further and GDP growing moderately. And as I just noted, I expect to see inflation moving up to 2 percent over the next couple of years," Yellen said.
She tossed out a few risk on the horizon, including "the thrust and resilience of domestic demand. Adding that weak performance in investment was concerning, as were the Friday job report numbers. Looking abroad, she noted that "much of the turmoil this year" has been related to growth in China. Some of those issues have smoothed out in recent months though China still faces considerable challenges, she added. Another issue globally that could upset markets and investors in the British vote later this month to possibly leave the European Union, called the "Brexit" vote.
"A U.K. vote to exit the European Union could have significant economic repercussions," Yellen said.
A full copy of Yellen's speech can be found at https://www.federalreserve.gov/…
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