Wall Street is hailing a strong May jobs report — and arguing that it makes the IMF look, well, wrong.
On Friday, the BLS reported the addition of 280,000 nonfarm payroll jobs, beating Wall Street’s expectations of 226,000.
But the big story is that wages grew 0.3% month-over-month, and have now grown at an annualized rate of 2.9% over the last 3 months.
And this sign is making analysts more confident that the Fed rate hike is almost here, standing in contrast to what the IMF said just one day ago
Less than 24 hours before Friday’s jobs report, the IMF warned the Fed that the US wont be ready for a rate hike until at least 2016.
Based on their forecasts, the IMF concluded:
The FOMC should remain data dependent and defer its first increase in policy rates until there are greater signs of wage or price inflation than are currently evident. Based on the [IMF’s] macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016.
The IMF added:
The Fed’s first rate increase in almost 9 years has been carefully prepared and telegraphed… Raising rates too soon could trigger a greater-than-expected tightening of financial conditions or a bout of financial instability, causing the economy to stall. This would likely force the Fed to reverse direction, moving rates back down toward zero with potential costs to credibility… [T]here is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident.
For many, some of those “tangible signs” came in Friday’s jobs report, and analysts wasted no time in calling out Lagarde for her poorly timed warning.
From Capital Economics’ Paul Ashworth:
Overall, at this stage this evident strength in the labor market probably isn’t enough to persuade the Fed to hike rates by July, but it definitely makes a rate cut by September probable. Only 24 hours later, the IMF’s suggestion that the Fed should wait until 2016 looks very dated.
UBS even issued a note to clients titled “Not a Lag(g)ard(e)of a Report,” in which they wrote that the jobs report convinced them that “the Fed will move in September rather than heeding the IMF’s advice.”
UBS added that, despite what the IMF says, “Wages appear to be moving higher and trend employment growth continues to be quite strong (or even accelerating).”
And finally, from Bank of Tokyo-Mitsubishi’s Chief Financial Economist Chris Rupkey:
The Fed is cleared for take off! Hallelujah! Our rates forecast has been rescued. The IMF came out with their 2016 Fed liftoff call a day too early. The Fed is going this summer… [It] looks like people are dropping back into the labor force looking for work, which is exactly what the Fed Chair wanted. More people “participating” will lower the inequality in the country. Fed officials, central bankers, should like that… Today’s report clears the Fed for liftoff, don’t take June off the table, and it is a slam dunk for rate hikes to start by the July meeting at the latest. Rate hikes this summer. Bet on it.
Here’s the chart from Deutsche Bank’s Torsten Sløk, who said that on Friday, markets got the moment they’ve been waiting for since 2009.
SEE ALSO: Wage growth!