Fed may not hike rates in June, even amid hiring

Federal Reserve officials have signaled that they could hold interest rates steady at their upcoming meeting in June — pausing after a string of 10 straight rate increases to assess whether their changes so far are sufficient to slow the economy and wrestle down rapid inflation.

Central bankers may remain on track for that more patient approach even after fresh jobs data released Friday showed strong hiring in May. While employers are still adding workers, other aspects of the report, including a jump in unemployment and a slowing in wage gains, muddled the signal coming from the data.

Investors seemed to think that the complicated employment report could make the Fed’s upcoming decision more challenging — but not so much that it would be a game changer. Wall Street nudged up the probability of a rate move this month after the report, based on financial market pricing. But even so, they still saw only a onein-three chance of an increase.

Fed officials have raised rates sharply over the past year and a half, pushing them to a range of 5 percent to 5.25 percent as of last month, up sharply from near-zero at the start of 2022. After all of that adjustment, policymakers have been preparing to stop moving rates up at every meeting. Pausing will allow their policies more time to play out while reducing the risk that policymakers go too far.

Officials want economic growth to slow, because they think a cool-down is necessary to bring inflation back under control. But at the same time, they do not want to tank the economy and cause a more painful pullback than is necessary by overdoing their policy reaction.

Several central bankers have said or suggested that they could leave rates steady as soon as their June 13-14 meeting, allowing them to assess how the economy is reacting to both their policy changes and after recent bank turmoil.

Higher interest rates cool the economy by making it more expensive to take out a loan to buy a house or car, but they take time to have their full effect. Businesses gradually pull back on expansion plans and cut back on hiring as higher borrowing costs take a toll. That should ultimately bring about weaker wage growth and a slower economy.