The Federal Reserve’s next monetary policy meeting looms June 22-23 and it is virtually certain that the outlook on keeping interest rates at their historic low will hold given the disappointing labor report today.
The labor update showed that private employers are hiring less than expected.
The U.S. Labor Department said that payrolls increased 431,000, with the government representing 95 percent of the gains – or 411,000 workers on temporary duty as census takers. It was the largest monthly increase in ten years and the fifth straight monthly gain.
Based on those payrolls, the unemployment rate slipped to 9.7 percent in May from 9.9 percent in April.
But private employment is the key measure of the labor market’s recovery, and considered a vital factor in Fed monetary policy consideration. Private payrolls increased just 41,000 after jumping 218,000 in April. Employers increased hours primarily, with the average week climbing to 34.2 hours on the job, up from 34.1 in April.
Payrolls data for March and April was revised downward by 22,000 jobs
Before the jobs report today, there had been rumblings from some Fed officials this week suggesting at least a reconsideration of the “extended period” posture on its bellwether federal funds rate, which has been at 0-.25 percent since December 2008.
Thomas Hoenig, president of the Kansas City Fed, said the U.S. central bank should raise the benchmark rate to 1 percent by the end of summer. Hoenig has been the single holdout on changing interest rate policy on the 10-member Federal Open Market Committee.
But two other top Fed officials hinted at reconsidering monetary policy. Dennis Lockhart, head of the Atlanta Federal Reserve, said policymakers should start looking plans for slowly reversing course, as did Dallas Fed President Richard Fisher. But both stopped short of agreeing with Hoenig on any imminent shift in policy.
Fed Chairman Ben Bernanke raised the issue of unemployment in a speech yesterday before a forum in Detroit that is part of an ongoing series on “Addressing the Financing Needs of Small Businesses.”
“High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole. I raise this issue here because healthy small businesses, including start-ups as well as going concerns, are crucial to creating jobs and improving employment security,” Bernanke said.
The Fed chairman also said that lending to small businesses has been declining, from $700 billion in the second quarter of 2008 to about $660 billion in the first quarter of 2010.
