US hiring nearly stalled in June while inflation held above 4 percent, a squeeze that leaves the Federal Reserve, already leaning toward a rate rise, with no clean move.
The economy added just 57,000 jobs in June, about half what forecasters expected, the Bureau of Labor Statistics said. It also cut April and May payrolls by a combined 74,000. Average monthly growth over the past year has slowed to 36,000.
Unemployment slipped to 4.2 percent, but for a soft reason: about 720,000 people left the workforce, and the number reported as employed fell. Wage growth of 3.5 percent trailed inflation for a third month running.
On prices, the Federal Reserve’s preferred gauge, the personal consumption expenditures index, rose to 4.1 percent in May, its highest in three years and more than double the 2 percent target. Much of the jump came from an energy shock tied to the Iran war, and oil has since eased, so May may prove the peak.
That mix has already pushed the Fed off its earlier path. At its June meeting, the first under new Chair Kevin Warsh, it held rates steady, dropped a rate cut it had signalled for this year and hinted at a possible increase. The weak jobs figures now pull the other way, and after the report traders trimmed bets on a September hike.
Nigel Green, chief executive of financial advisory firm deVere Group, calls it a trap. Policymakers, he argues, are caught between a cooling economy and prices that will not settle, with no easy fix. “The economy is slowing, but inflation remains above 4%,” he said.
Green says the wider lesson is for anyone who bet on cheap money returning soon. Investment plans and asset prices built on the assumption of quick rate cuts, he argues, now need a rethink. Until either growth or inflation gives way, the direction of US rates stays hard to call.
