Solid Jobs Report Likely to Intensify Fed's Debate on Rate-Hike Timing
Friday's jobs report should reassure Federal Reserve officials the economy is improving as they have predicted and it could intensify their debate about when to start raising short-term interest rates.</br></br>Fed officials have encouraged a view in financial markets that they won't start raising rates from near zero until mid-2015. But a swift decline in the jobless rate in recent months--while welcome for the economy--means slack in the labor market might be diminishing a bit faster than officials expected, a possible source of higher inflation in the future and of tension inside the Fed as officials consider how long to wait on raising rates.</br></br>"There is a pretty high bar for them changing the mid-2015 indication," said Alan Levenson, chief economist at T. Rowe Price Associates. "I have thought for quite some time that they ought to be getting off of zero."</br></br>The surprise in Friday's report for the Fed was the stability of the U.S. unemployment rate at 6.3% in May and April. A number of officials expected to see the jobless rate rise a bit in May after such a large drop in April from 6.7% in March.</br></br>The next touch point in Fed officials' debate about labor-market slack will be the projections they release in mid-June for the unemployment rate, inflation, growth and interest rates.