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Payroll Gains Keep September Rate Rise in Play

Yellen: Equity Market Valuations Are 'Quite High'

The April payrolls rebound keeps a September Federal Reserve rate increase in play, economists said, while prompting some investors to mark down the odds that the Fed will lift off this year.

“The labor market is continuing to improve,” said Roberto Perli, a former Fed board economist who is now a partner at Cornerstone Macro LLC in Washington. Policy makers thought “September was the base case for an increase, and that is still the case.”

Employers added 223,000 workers to payrolls in April after a bigger setback in March than was previously estimated, Labor Department data showed Friday. The unemployment rate fell to 5.4 percent, the lowest since May 2008, from 5.5 percent.

Fed Chair Janet Yellen and her colleagues are gauging the strength of the labor market as they consider when to lift the main interest rate from near zero for the first time since December 2008. The first rise will be in September, according to 73 percent of 59 economists in a Bloomberg survey conducted April 22-24.

Friday’s jobs report spurred traders in money-market securities to mark down the odds of a December move, to 51 percent from 62 percent earlier Friday, according to CME Group Inc. calculations. Federal funds and Eurodollar futures have consistently pointed to a later liftoff than called for by economists.

June Odds

The likelihood of a move in June dwindled as the report showed weak wage gains and a downward revision to payrolls growth for March. Payrolls rose by 85,000 in March, the least since June 2012. Average

hourly earnings climbed 2.2 percent from a year earlier, less than economists had forecast.

“The hurdle for June is really high,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York and a former Fed board economist. He maintained his forecast for liftoff in September.

While the decline in the jobless rate brings it closer to the level Fed officials see as full employment, there’s still a way to go. Officials in March reduced their full-employment estimate to a range of 5 percent to 5.2 percent, from 5.2 percent to 5.5 percent.

“As long as we are adding jobs at a strong pace, at around 200,000 monthly, the economy should be able to withstand a slight increase in interest rates,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

March Statement

The Federal Open Market Committee in March dropped a promise to be “patient” on raising rates, saying instead it wants to see further improvement in the labor market and be “reasonably confident” inflation will move back up toward its 2 percent goal. The FOMC said in its April 29 statement that “a range of labor market indicators suggests that underutilization of labor resources was little changed.”

“I’m feeling really good about September before this number and after this number,” said Phil Orlando, chief equity strategist at Federated Investors Inc. in New York, which has $360 billion in assets. “Theres nothing in today’s data that suggests to me that we move it up to June now.”

Category: Bank

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