Top Economists Give Their Take On A June Rate Hike
May's jobs numbers came in well below expected (for the second month in a row), with just 38,000 jobs added. Bisnow asked six top economists this question: What are the chances of a June rate hike now?
Danielle Hale, managing director of housing research—National Association of Realtors
“May not only revealed a poor jobs figure, it showed downward revisions to previously reported jobs data. Many Fed decision-makers have indicated that this new data has caused them to prefer to keep rates stable for another month to see if this weak patch is more than a bump in the road. However, overall economic growth continues, inflation seems to have picked up in April, and while job growth has slowed, it has slowed into a range that some Fed decisions-makers have said is appropriate given the stage of the recovery and the low unemployment rate. I think the odds are quite low that the FOMC decides to proceed with a hike at its meeting in June, but I wouldn’t completely rule it out. Chair Yellen has made it clear that incoming data will be considered, and additional data coming out this week (JOLTS) and early next week (PPI, import-export prices, retail sales and industrial production) could tip the scales toward either side of the decision, though it would take very strong data from several of the releases for me to expect the FOMC to move rates up in June."
Jack Kern, director of research and publications—Yardi
"The Federal Reserve is in a peculiar position of having few tools left for accommodative rate changes. The most recent jobs report isn’t a great indicator by itself and the sense of dread that the Fed is exhibiting seems to justify the viewpoint that a rate increase is now unlikely. This rate increase roulette isn’t a policy that brings some sense of clarity to the issues. Managing rates and the expectations of rates is based on a long-term view, not a quarterly result, and the Fed is charged with balancing inflation against economic growth. Right now, we don’t have a lot of either. I think June is probably unlikely but the balance of the year is still a question. There are some positive indicators out there—for example, the unemployment rate and first-time claims for unemployment are on a clear trajectory. The negative indications on the types of jobs created and the level of trade and manufacturing bear watching. The coverage of the economy has been uneven in the media and so consumer confidence and the business viewpoint, purchasing managers indices and other measures have been more volatile than normal. Overall, I’m still pretty positive."
Barbara Denham, economist—Reis
"Almost none. The data just doesn’t support it. The breadth of the slowdown in employment is significant, it’s not just the oil-based metros. Of the 82 markets we track, all had positive employment growth in 2015, yet three have shown employment declines on a year-to-date basis in 2016: Rochester, Tulsa and New Orleans. Moreover, 52 out of 82 metros (63%) have seen a deceleration in employment growth in 2016. With the global uncertainty still weighing heavy on the dollar and export industries, it makes no sense to raise rates in June. Moreover, the jobs data will have to bounce back noticeably for the Fed to act in July."
Ray Torto, Harvard lecturer, retired global chief economist at CBRE
"The jobs number has a standard error around 100,000 jobs, I am told. The monthly data is indicative of trend, and not precise as to numbers. Additionally, the numbers will start to weaken as the supply of labor reaches its maximum. We cannot hire what is not available to be hired. Other indicators show the US economy doing well, and for this reason I think the rate hike is on the table this summer—June or July, not sure, but certainly doable in either month."
Robert Bach, director of research, Americas—Newmark Grubb Knight Frank
"A June rate increase is off the table due to the disappointing May jobs report released last Friday and the potential for financial market volatility if the UK votes to leave the European Union in the Brexit referendum on June 23. A July rate increase is possible if the June employment report—to be released July 8—bounces back and if other economic indicators remain solid, especially consumer spending."
Jeffrey Havsy, Americas chief economist—CBRE
“We do not believe the Fed will raise in June or July but will wait to see additional data (including June employment data) before committing to [its] next rate increase.”