Summary
United States: Rock Solid Labor Market Keeps the Fed in a Hard Place
- In April, employers added 253K jobs and the unemployment rate fell to 3.4%. During the same month, the ISM services index edged up to 51.9, while the ISM manufacturing index improved to 47.1. In March, the count of job openings declined to 9.6 million, while construction spending rose 0.3%. Nonfarm productivity declined 2.7% in Q1 as unit labor costs jumped 6.3%.
- Next week: NFIB (Tue), CPI (Wed), Consumer Sentiment (Fri)
International: Global Central Banks Still Active
- In addition to the Fed’s rate hike, several international central banks were active this week. The European Central Bank raised its policy rate 25 bps to 3.25%, and signaled further tightening to come. Norway’s central bank also raised its policy rate 25 bps to 3.25% and indicated rates would be raised further, while the Reserve Bank of Australia surprised market participants with a 25 bps rate increase to 3.85%.
- Next week: Mexico CPI (Tue), Bank of England Policy Decision (Thu), U.K. GDP (Fri)
Interest Rate Watch: The Fed Hikes Again
- As widely expected, the FOMC elected to raise its target range for the federal funds rate by 25 bps on Wednesday to 5.00%–5.25%. This may very well be the last hike of the current tightening cycle. The FOMC did not pre-commit to another rate hike on June 14, and the next action will depend on how the economy evolves from here.
Topic of the Week: The Looming Debt Ceiling X Date Draws Closer
- On Monday, Treasury Secretary Janet Yellen gave guidance that the Treasury could be unable to meet all of the government’s obligations as soon as early June due to the debt ceiling constraint. The Treasury bill market suggests investors have taken notice of the political standoff over the nation’s debt ceiling.
