US: Solid NFP report reinforces belief of another 50 bps rate hike on June – Wells Fargo

The US economy created 428.000 jobs for the second month in a row, near market expectations. According to analysts at Wells Fargo, the report is solid and reinforces their belief that the Federal Reserve will execute another 50 bps interest rate hike at its next meeting on June 14-15.

Key Quotes: 

“Nonfarm payroll growth barreled ahead in April. Employment rose by 428K in the month, more or less in line with consensus expectations after accounting for modestly negative revisions to prior months. The labor force participation rate disappointingly fell two-tenths of a percentage point, but the decline came on the heels of a string of solid increases, and we are cautious about reading too much into today's drop. Wage growth looks to be showing some tentative signs of peaking on a year-ago basis but is still running more than double its average pace in the 2010s.”

“As workers stream back into the labor market and the Fed steps on demand, we expect wage growth to moderate ahead. While the first quarter's rise in the Employment Cost Index was a scorcher, there are other signs that wage hikes may start ease, indicated by small business compensation plans and reports from the Fed's latest Beige Book. That said, wages are unlikely to slow to a pace consistent with 2% inflation anytime soon and point to elevated labor costs keeping the Fed on its hawkish path.”

“In the near-term today's solid job report reinforces our belief that the FOMC will execute another 50 bps rate hike at its next meeting on June 14-15.”