Fed seen hiking policy rate above 5% as hiring surges

The U.S. Federal Reserve is likely to need at least two more interest-rate hikes, lifting the benchmark rate to above 5%, to slow an unexpectedly strong labor market seen as contributing to high inflation.

That was the betting in financial markets on Friday after the U.S. Labor Department reported employers added more than half a million jobs last month, far more than expected, and the unemployment rate fell to 3.4%, the lowest in more than 50 years.

The Fed earlier this week increased its benchmark rate by a quarter-of-a-percentage-point to 4.5%-4.75%. Fed Chair Jerome Powell said that with the labor market still tight he expects to need “ongoing” increases to get monetary policy “sufficiently restrictive” to engineer a more balanced job market and bring down too-high inflation.

Interest-rate futures prices, initially skeptical of that view, now reflect that expectation, with a better than even chance seen that the Fed will continue get its policy rate to the 5%-5.25% range by June, if not by May.

Financial markets had earlier heard Powell’s repeated references to the start of a disinflationary trend as signaling that just one more rate hike, in March, could suffice.

“This is the kind of report that you want to see when coming out of a recession to signal strength in the economy, not when the futures market is looking at the Fed finishing its rate hike cycle,” said Quincy Krosby, chief global strategist at LPL Financial.

This report’s information was first seen on REUTERS; to read more, click this link.