Federal Reserve Expected to Delay Rate Increase

Amid negative economic data from May, speculation has begun to flourish that the United States Federal Reserve Board will hold off on an expected increase in interest rates. The rate hike was originally expected to be approved at the Fed’s scheduled meeting next week.

The primary reason for the expected change in scheduling for the gradual return to normal interest rates is a job growth report for the month of May. The report highlighted a net job growth of only 38,000. The tepid statistics from May have driven critics of interest rate hikes to call for a delay of the hike, a strategy that some now believe that Fed Chairwoman Janet Yellen may pursue. In a Monday speech, Yellen reasserted her backing for the gradual return to more normal interest rates, but notably did not make any statement as to when the next hike would occur. The speech stood in contrast to a similar one made in late May in which Yellen voiced her opinion that the rate increases would be feasible in the short term.

However, some economists have argued that the seemingly poor jobs report is not a sufficient reason to hold off on a rate increase. Despite the fact that only 38,000 net jobs were created, much debate has occurred as to the reasons for that number. One of the largest contributors to the report was a reported loss of 34,000 jobs in the information sector. Though this may seem like a massive contraction on the surface, the number is actually a result of the reporting method used to compile the report. In that methodology, workers who are on strike are considered to be unemployed, even though their employment agreements may not have been formally terminated. As such, the large drop in information sector jobs was greatly affected by the current strike of thousands of Verizon Wireless workers who are currently in a standoff with their employer. Other economic indicators for May were also generally more positive than the job growth report.

Whether or not the rate hike truly will be delayed will not be known until next week’s scheduled meeting. At present, analysts suggest that if a delay does occur, it would set the rate increase back into the autumn. Foreign exchange markets saw a mild shift on Monday with Yellen’s comments, causing the USD to increase moderately in value before readjusting to its previous level. The slight value change may be an indicator of a more concrete increase in the strength of the dollar if the rate increase delay is formally approved by the Federal Reserve.