Policymakers at the Federal Reserve signaled last month that they were considering a pause in their 14-month long regimen of hiking interest rates to cool the economy and bring down inflation.
But the US economy is like an engine that won't quit — it just keeps on pumping out jobs. New data out Wednesday showed that job openings and hiring both rose in April while unemployment sits near 53-year lows. With just two weeks left until the central bank's next policy decision, it appears that more rate hikes could be coming after all.
Investors — already contending with fallout from the banking crisis, the lingering effects of debt ceiling turmoil and economic slowdowns in China and Europe — aren't very happy about that prospect.
What's happening: The number of available jobs in the United States unexpectedly rose in April after three months of declines.
Job openings climbed to 10.1 million in April, according to data released Wednesday by the Bureau of Labor Statistics. Economists were expecting about 9.4 million, according to consensus estimates on Refinitiv.
There are now 1.77 openings for every job seeker, the BLS data shows. Hiring activity also grew and layoffs dropped in April.
Job growth is healthy and that's good for the economy. Business and consumer sentiment remain resilient and spending and investment are also proving to be relatively robust. But this could be another case of "good news is bad news" for the Federal Reserve.
Fed Chair Jerome Powell has said that he wants to see more slack in the labor market. If there's an imbalance between labor supply and demand, he says, wages will rise and add to upward pressure on prices.
More data is expected before the Fed next decides on interest rates on June 14, including the closely-watched government jobs report and the Consumer Price Index for May due June 13.
Fed Governor Philip Jefferson said on Wednesday that a pause at the June meeting wouldn't mean that hikes are finished but would instead give central bank officials more time to assess the state of the economy.
"A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle," said Jefferson in a speech. "Indeed, skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming."
Also complicating matters: The Fed's favorite inflation gauge bounced higher in April. The Personal Consumption Expenditures price index rose 4.4% for the 12 months ended in April, up from a 4.2% increase seen in March, according to data released Friday by the Commerce Department.
"It remains to be seen whether the Fed is prepared to pause or skip a rate hike at a forthcoming meeting," said Bankrate senior economic analyst Mark Hamrick. "While the Fed is still talking like it is on the inflation righting warpath, the resilience and strength of the job market have been remarkable.
Markets are currently placing the probability of a quarter percentage point rate hike in June only at about 30%, according to CME FedWatch. That's up from around 0% in mid-May. Prior to Jefferson's speech, markets were pricing in a 70% chance.
"After last month's meeting, it seemed certain that the word change signaled that the Fed was on pause," said Sam Stovall, chief investment strategist at CFRA research.
"However, due to stronger-than-expected economic reports, stickier-than-anticipated inflation readings, and increasingly hawkish Fedspeak, we now see the [Fed] postponing its pause and raising rates by [a quarter percentage point]," he said.
The bottom line: Uncertainty seems to be the name of the game right now. "Markets may wish for a Fed pivot, but we believe that hope is not a strategy," said David Kotok, chairman and chief investment officer at Cumberland Advisors. "Of course," he added, "that could change at any time."
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