Fed unlikely to change its stance on the basis of two job reports

The US Federal Reserve is widely expected to maintain the Fed funds target range at 0.25-0.50 percent when the June meeting is concluded on June 15. The thrust is on its communication in the statement through updated economic projections (especially the so-called ‘dots’) and Fed chair Yellen’s press conference.

“While some individual ‘dots’ are likely to be lowered, we think the median ‘dots’ for this year and next will be unchanged, signalling two and four hikes, respectively,” said Nordea Bank in a report.

In her latest speech just before the blackout period ahead of the FOMC meeting, Yellen did not repeat that a hike ‘in coming months’ could be appropriate and she highlighted the downside risks to the US economic outlook. However, she thinks the positive factors outweigh the negative. She also mentioned that while the jobs report ‘was, on balance, concerning’ she thinks that ‘one should never attach too much significance to any single monthly report’.

The last two jobs reports from the US reported weak growth but other labour market indicators have been better; hence, it is too early to say whether the labour market is slowing or if it’s just volatility. Before the gloomy jobs report, the Fed had hinted the markets for an upcoming hike in either June or July.

"We believe the Fed will adopt a 'wait and see' approach. We still expect it to hike in September but risks are skewed towards a later hike as it would require a rebound in employment,” adds Nordea Bank.