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Fed Could Be Done Tinkering With Interest Rates After 10th Straight Hike

The Fed raised interest rates by 25 basis points on Wednesday, the same day when ADP reported strong April private-sector job growth.

While the rate hike came in as expected for the Federal Open Market Committee (FOMC), the addition of 296,000 jobs last month handily beat economists’ 133,000 consensus estimate, countering the idea that the labor market is cooling off. The jobs gain marked the highest monthly increase since July 2022, although 6.7 percent pay growth was off from the 7 percent gains in recent months.

Nela Richardson, ADP’s chief economist, said slowing pay improvements illustrate “what’s going on in the labor market right now.” Employers that are hiring aggressively are also “holding pay gains in check as workers come off the sidelines,” she said.

Many economists expect the Labor Department on Friday to report a 180,000-job increase in nonfarm payrolls, versus March’s 236,000 bump.

The Fed could be reacting to a tighter credit market linked to the banking sector’s deposit runs that began in March with the collapse of Silicon Valley Bank (SVB) and Signature Bank. The FOMC statement didn’t say that the Fed “anticipates” additional rates, suggesting that the tenth hike could be its last one for the foreseeable future. It said, however, that “some additional policy firming may be appropriate,” depending on what washes up in the next wave of data.

In a press conference Wednesday, Fed chairman Jerome Powell said the reality of credit being harder to come by might leave the Fed with little to do on the rate hike front when the FOMC meets next on June 14.

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“The general sentiment appeared to be an FOMC ready to pause, just not ready to commit to doing so,” said UBS economist Jonathan Pringle.

In a research note Wednesday, Wells Fargo’s chief economist Jay H. Bryson wrote, “By the time the July 26 meeting rolls around, we believe that incoming data on economic activity will be soft enough to keep the [FOMC] on hold again.”

Bryson believes a third-quarter economic slowdown will mean the FOMC will keep rates intact at its September and November meetings. A deeper downturn could mean the Fed cuts rates “at the very end of this year [or] early next year, Bryson wrote.

Retail jobs have been dropping like flies. The bankruptcies of David’s Bridal, Bed Bath & Beyond and Tuesday Morning have cast thousands into unemployment. But technology investments seem to be putting some tech workers out of a job, with Nordstrom and trimming this subset of staff. Boohoo plc and Asos have pruned their workforces, not to mention the massive cuts at Amazon, Google, Salesforce and Meta.

For now, retail frontline workers are the ones that appear safe from any reductions in force. But if economic conditions worsen and a recession kicks into play, they could be the next ones to go.