| WASHINGTON, July 3
WASHINGTON, July 3 A bullish U.S. jobs report
prompted several economists to toy with the idea of bringing
forward their forecasts for a Federal Reserve interest rate
hike, although most held firm, preferring to wait for more data.
Interest rate futures showed traders ramping up bets
slightly that the U.S. central bank will lift rates in June of
next year. The probability of a June rate hike implied by rate
futures rose to 58 percent from 51 percent before the data.
The Fed has signaled that slack in the labor market and wage
pressures remain key gauges of when policymakers would feel
comfortable raising rates from near zero, where they have been
Still, Thursday's jobs report was stronger than the market
anticipated, and economists followed the news with notes that
braced clients for the possibility of an earlier Fed lift off.
Nonfarm payrolls increased by 288,000 last month and the
unemployment rate fell to 6.1 percent, its lowest level since
September 2008, the Labor Department said.
The data also showed a decline in the number of Americans
who have been out of work for at least 27 weeks, which at 3.1
million was the smallest pool since February 2009.
The numbers prompted J.P. Morgan's chief U.S. economist,
Michael Feroli, to bring forward his forecast for a Fed
tightening. It was the first time J.P. Morgan made such a call
"in recent memory," Feroli said in the report.
J.P. Morgan now sees the Fed's rate lift off in the third
quarter of 2015, up from the fourth quarter. Feroli added that
given the jobs and inflation data, a second quarter tightening
next year is "plausible."
Barclays, which predicts the Fed's first hike in June of
next year, said the report is unlikely to have much effect on
the Fed's policy in the near term. But the bank noted that the
Fed could move sooner if the unemployment rate continues to fall
faster than the Fed expects, and core inflation moves above the
central bank's target.
HSBC stuck with its call for a rate increase in the third
quarter of 2015.
Goldman Sachs said the June report shows the possibility of
an earlier hike than the bank's first quarter of 2016 call.
Key to the lift off equation is the long-term unemployed and
wage pressure. Fed Chair Janet Yellen has repeatedly said slack
remains in the labor market, and that as the economy recovers,
the long-term unemployed will return to the workforce. That puts
downward pressure on wages, at a time when inflation is below
the Fed's 2 percent target. Yellen's view is opposed by both
prominent economists and Fed officials.
"Still-low wage growth and the lack of a rebound in labor
force participation will keep the core dovish FOMC members
easy," Ethan Harris, co-head of Global Economics Research
at Bank of America, said on Thursday.
Harris added, however, that "there is now an increased risk
of an earlier first rate hike, though Fed officials are not
prone to changing their outlook dramatically on one report
(Editing by Chizu Nomiyama)