By Michael S. Derby
NEW YORK, May 8 (Reuters) – Strong U.S. hiring data in April dealt prospective Federal Reserve Chair Kevin Warsh’s hopes of cutting interest rates a setback on Friday, giving officials greater latitude to use monetary policy to tackle increasingly high inflation.
The U.S. economy added 115,000 jobs in April, exceeding analysts’ forecasts, following an upwardly revised job gain of 185,000 in March. The April job gain was well above the pace of job creation many analysts say is needed to keep the job market steady. The unemployment rate held steady at 4.3%.
The hiring indicates the U.S. job market continues to do well at a time when inflation pressures are mounting on the back of the ongoing impact of President Donald Trump’s import tax hike coupled with surging energy prices caused by the Iran war.
The data diminished what were already low odds that the Fed can cut interest rates later this year and strengthened the hand of the substantial number of Fed officials who are worried about inflation and want to hold rates steady for an extended period.
“The labor market is not booming, but it is proving harder to break than many feared,” said Olu Sonola, head of U.S. economics at Fitch Ratings. “If unemployment stays this stable, the Fed’s attention shifts back to inflation,” Sonola said, adding that if price pressures remain robust “the Fed’s easing bias is unlikely to survive much longer”.
Futures markets currently put negligible odds on a Fed rate cut this year and foresee the current federal funds rate range prevailing through the rest of the year.
Following the release of the jobs data, analysts at research firm LH Meyer said they’d take out of their forecast for a Fed rate cut in 2026, while noting they also don’t see a case for raising rates either.
Bank of America economists now see the Fed cutting rates in July and September of 2027, having pushed back their forecast for cuts in September and October of this year. “The data simply don’t warrant cuts this year,” as core inflation is high and getting worse and the job market is “solid,” they wrote.
In an interview on CNBC, Chicago Fed President Austan Goolsbee said the job market has been “stable without being good” and “I still think there’s not a lot of evidence that the job market is falling apart.” Meanwhile, inflation has exceeded the Fed’s 2% target for an extended period and is getting worse rather than better, he said.
Goolsbee added Fed officials are trying to figure out whether the oil shock will conform with past experience and prove a temporary event or whether it will make for something more enduring given how long inflation has overshot the Fed’s 2% target. He said that sorting that out is a key part of the current monetary policy debate.
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Last week, the Federal Open Market Committee held its interest rate target range at 3.50%-3.75% and maintained a leaning towards further rate cuts in its policy statement.
That drove three regional Fed bank presidents who disagreed with the bias toward easing to dissent as part of the biggest opposing vote wave since 1992. In subsequent comments, they explained uncertainty over the outlook and the risks created by the Iran war mean it could even be possible the Fed would have to raise rates at some point.
Cleveland Fed President Beth Hammack said in a radio interview on Thursday, “I think our statement should have a pretty neutral stance about whether the next move is down or up or just on hold for a really long period of time”.
The diminished odds of a Fed rate cut come as Warsh is zeroing in on Senate confirmation to succeed Jerome Powell, whose term ends on May 15.
Warsh has expressed interest in cutting interest rates but as of now, is likely to find few takers given mounting energy prices and an unresolved war that increases the odds price pressures will mount further the longer the conflict goes on.
Warsh may be further boxed in on the policy front as Powell intends to stay on in a governor slot that runs until 2028 while he seeks assurance the Trump administration’s legal investigations targeting the central bank are over.
While Powell said, “I’m not looking to be … a high-profile dissident or anything like that” at the FOMC meeting press conference, his presence will likely strengthen the positions of those who oppose rate cuts.
In a TV interview on Friday, Fed Governor Stephen Miran, who had been a key economic advisor to Trump before joining the central bank, reiterated his case for cutting rates, arguing that the current monetary policy stance is likely holding the job market back.
Miran, who is currently serving an expired term and will have to leave when Warsh is confirmed, also said he hopes Powell staying on is “transitional” and not a “nefarious” move that would muddy the waters of who is actually running the Fed.
(Reporting by Michael S. Derby and Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama, Alexander Smith and Andrea Ricci )
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