The remit of the United States Federal Reserve Bank is responsible for the conduct of the US’s monetary policy and is independent of political control. A key aspect of US monetary policy is to “… promote maximum employment, stable prices, and moderate long-term interest rates in the US economy”. It is this remit which means that significant changes in the US employment situation are watched closely as a portent of possible movements in US interest rates. If employment falters, there is (some) pressure for easing interest rate policy to stimulate the economy. In times of strong employment, there is a much softer pressure to raise rates in a bid to stave off wage inflation.
The job creation data for May shows that the US economy produced only 75000 jobs in May, well down on the projected figure of 185000. Despite the relatively weak job creation figure, the official level of unemployment remained at 3.6%; the lowest level seen in 50 years. The official unemployed figure is 5.9 million.
Investors saw the job creation data as a sign that the US economy is weakening and that prompted a sell-off of the Dollar which slipped by 0.4% against other major currencies when the data was released. Wage increase were also softer than had been expected. Monthly wage growth saw just six cents added to the average hourly rate, a similar level to April and taking full year wage rises down marginally to 3.1% (year-on-year).
Some analysts are suggesting that the Federal Reserve may act to stimulate the economy by cutting interest rates (probably by 0.25%) in July which contributed to downwards pressure on the Dollar. A further factor which is likely to feed through into the economy is the knock-on effect of President Trump’s trade war with China which has the potential for some inflationary pressure in the US economy and may also exert a weakening effect economically since some Chinese exports are used as components in US products and are becoming more expensive as a result of the tariffs.