CHAPEL HILL — A UNC economist says that the monthly labor report, released today, indicates “an overheating labor market” and that the Federal Reserve could continue to raise rates in response.
Total nonfarm payroll employment increased by 339,000 in May, the U.S. Bureau of Labor Statistics
shared in their report today. Brown says that economists were expecting a much lower change of 195,000.
“It’s an indication that we continue to have an extremely strong labor market,” said Brown. “The Fed has to be thinking about what this means in terms of policy.”
Raising interest rates could impact borrowing costs, investment decisions, and overall economic activity—all big concerns for business.
But Brown, who’s the Executive Director of the Kenan Institute and a professor of finance at UNC, says that economists are now predicting once again that the Fed will continue to raise rates.
“This is a movie that we’ve seen again and again,” said Brown. “It’s just over the horizon for the Fed to stop raising rates. It’s always been a couple of months, three months, away, and here it is still.”
Brown also said that he thinks the Fed will likely have “at least one, potentially two, additional rate increases” this summer in an effort to cool the labor market.
“With a labor market that is so strong, with such persistently strong inflation, it’s really hard for me to see how the Fed can justify any pause,” Brown said.
Overall, he said that the Fed’s policy is still only “slightly restraining” if viewed in a historical context. In other words, even though the Fed has been tightening rates rapidly, the current rates are still pretty low in the context of inflation and the labor market, especially when compared to previous similar cycles.
“They could still have another percent or two of tightening that they need to do to get back to historical precedence,” said Brown.