Kansas City Fed President Hammack stated the jobs market is roughly in balance with a 4.3% unemployment rate, but high and rising inflation is a greater concern. She indicated that persistent inflation could warrant decisive action, potentially leading to rate hikes if recent trends continue. The market is now pricing in a higher probability of a September rate hike.
Kansas City Fed President Michelle Bowman, described as a hawk, commented on the latest jobs report, noting that it reaffirms the labor market is roughly in balance. She stated that the unemployment rate remaining stable at 4.3 percent is around her definition of full employment. However, Bowman expressed greater concern over inflation, which she described as high, moving higher, and persistently so. She warned that a shift in consumer, business, and market expectations towards higher inflation would warrant decisive action. For the immediate future, Bowman suggested keeping interest rates steady given economic uncertainties, but indicated that if recent trends continue, it may soon be appropriate to act. She also noted that revisions to previous jobs reports make the March and April prints materially better, painting a picture of an improving, not just balanced, jobs market. Following these comments, market expectations for a September rate hike increased to 44%, with a December hike now fully priced in. In the rates market, US 2-year yields rose by 9.8 basis points to 4.15% on the day.
The comments signal a potential shift towards tighter monetary policy if inflation does not abate, impacting borrowing costs and economic growth expectations. Increased market pricing for rate hikes suggests a more hawkish outlook from the Federal Reserve.