The April was not as strong as it looked, so the Fed may still cut key to promote job creation, especially while wage inflation remains subdued. Specifically, the Labor Department reported that 115,000 payroll jobs were created in April, which was well above economists’ consensus estimate of 65,000. The February payroll was revised down to a loss of 156,000 (down from 133,000 loss previously reported), while the March payroll was revised down to a gain of 178,000 jobs (down from 185,000 gain previously reported). The remained unchanged at 4.3%. Average hourly earnings rose 0.2% by 6 cents in April to $37.41 per hour and 3.6% in the past 12 months. The average workweek expanded to 34.3 hours in April, up from 34.2 hours in March. Interestingly, IT and federal workers lost jobs in April.
Speaking of the Fed, it telegraphed in its more recent Federal Open Market Committee () statement that it is still open to an additional key interest rate cut, despite a minority of objections. America’s dominance is strengthening the U.S. dollar and causing the prices of many commodities and imports to soften, which is, in turn, deflationary. AI productivity gains are also deflationary. Since the Fed cannot control energy prices, I expect that incoming Fed Chairman Kevin Warsh will strive to convince the FOMC that more key interest rate cuts are necessary.
There has been talk that Treasury Secretary Scott Bessent and Warsh may explore coordinated action to push lower. As more central banks conduct quantitative easing (i.e., money printing) due to shrinking demographics in Asia and Europe make balancing bloated government budgets harder, the U.S. will have some flexibility. Whatever Bessent and Warsh do, they do not want to weaken the U.S. dollar, since a strong dollar is naturally deflationary, because it lowers the price of commodities (priced in U.S. dollars) and imported goods.
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