June Job Numbers Prompt Speculation of Second 75-Point Rate Hike — A Move Not Seen in Decades

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Last week’s better-than-expected June jobs report increases the likelihood that the Federal Reserve will issue another 75-point interest rate hike at its July meeting, according to various media reports. It would be the second such increase in two months — something hasn’t happened since at least the 1980s.

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It’s no coincidence that the 1980s was also the last time the U.S. inflation rate pushed above its current level of 8.6%. The Fed’s determination to tame inflation through a series of interest rate increases has raised fears that the moves will lead to a recession, but the robust June jobs report temporarily quelled those fears.

The report, released on July 8, showed that the U.S. economy added 372,000 jobs in June, Reuters reported. Private employment rose back above its pre-pandemic levels, while the nation’s unemployment rate remained at a historically low 3.6%. The strong report likely stiffened the Fed’s resolve to issue another 75-point rate hike this month after doing so in June.

“I am fully supportive of moving 75 basis points,” Atlanta Fed President Raphael Bostic told CNBC. “This [jobs] report just reaffirms that the economy is strong and that there is still a lot of momentum in the labor market, and that is a good thing.”

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Many economists also expect the Fed to push rates up by 75 basis points in July.

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“It is starting to look like 75 is the number,” Michael Feroli, the chief U.S. economist at JPMorgan Chase, told The New York Times last week. “We’d need a serious disappointment for them to downshift at this meeting.”

Federal Reserve interest rates are currently set in a range of 1.5% to 1.75%. That’s up from near-zero at the start of 2022 but still probably low enough that it won’t trigger a recession, experts say. However, the Fed has signaled that it might want to push the rates to around 2.5% as a way of cooling economic growth and curbing inflation — which some fear could cause a downturn.

Meanwhile, a separate New York Times article noted that continued wage gains in the U.S. make it difficult for inflation to slow toward the Fed’s normal target of 2%. When companies raise wages, they usually raise prices to cover the extra costs.

“Wages are not principally responsible for the inflation that we’re seeing, but going forward, they would be very important, particularly in the service sector,” Fed Chairman Jerome Powell said at a June news conference. “If you don’t have price stability, the economy’s really not going to work the way it’s supposed to. It won’t work for people — their wages will be eaten up.”

According to Goldman Sachs estimates, pay gains probably need to slow to about 3.5% to be consistent with the Fed’s inflation goal.

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