WASHINGTON • The argument for a June interest rate hike from the Federal Reserve has evaporated.
Economists and investors largely agreed that last Friday's disappointing employment report for May - the US economy added just 38,000 new jobs - all but eliminated the chance that Fed officials would tighten policy when they meet in Washington on June 14-15. The data may also make it difficult for them to raise the interest rate in July.
The job market report "is sobering and suggests that the labour market has slowed", Fed governor Lael Brainard said in Washington the same day.
"Prudent risk management implies we should wait for additional data to provide confidence that domestic activity has rebounded," said Ms Brainard, who has previously argued for patience on raising rates.
Recent comments from other officials prior to the report, including Fed chairman Janet Yellen on May 27, signalled that they were in favour of a rate increase in coming months. Ms Yellen will deliver remarks again tomorrow, making her the last Fed official scheduled to speak publicly before the quiet period typically observed in the week before a Federal Open Market Committee meeting.
"I thought she would be kind of sealing the case for June," said Mr Stephen Stanley, chief economist at Amherst Pierpont Securities in New York. "Maybe it is time for her speechwriters to plan a long weekend."
US stocks pared part of early losses to end modestly lower on Friday. The Dow Jones Industrial Average fell 31.50 points, or 0.18 per cent, to 17,807.06.
The Labour Department report showed employers across the US added jobs in May at the slowest pace since 2010, even as unemployment declined to 4.7 per cent. The drop, however, was caused not by job creation but by people leaving the workforce.
The labour force participation rate - those working, plus those looking for work, as a percentage of working-age Americans - fell to 62.6 per cent from 62.8 per cent in April. Also, the share of Americans working part-time because they could not find full-time work - a gauge Ms Yellen has indicated she is watching for signs of remaining slack - jumped to the highest since August. The number of jobs added in April was revised down to 123,000 from 160,000.
Mr Carl Tannenbaum, chief economist at Northern Trust Corp in Chicago, stressed that the dismal May numbers could not be dismissed as a one-month aberration.
"The revisions were so significant it does begin to paint a trend of deceleration over three months," he said.