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Fed drops June rate hike after poor jobs report

PHILADELPHIA — The Federal Reserve, mindful of unexpectedly weak job growth last month, has abandoned hope of raising interest rates at its next meeting in June, but Fed officials say they are still thinking seriously about raising rates in July or September.

PHILADELPHIA — The Federal Reserve, mindful of unexpectedly weak job growth last month, has abandoned hope of raising interest rates at its next meeting in June, but Fed officials say they are still thinking seriously about raising rates in July or September.

Ms Janet L Yellen, the Fed’s chairwoman, said a few weeks ago that she expected the Fed to raise its benchmark interest rate “in the coming months”, but she omitted those words from a Monday speech, indicating the reported weakness of job creation in May has caused the Fed to rethink its plans.

Still, Ms Yellen delivered a generally upbeat assessment of economic conditions. While describing the May jobs report as “concerning”, she also emphasised that it was just one piece of data and that other economic indicators, including wage growth, paint a considerably brighter picture.

“I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones,” she told the World Affairs Council of Philadelphia.

Investors have all but written off the chances the Fed will increase rates at its next meeting on June 14 and 15, and Ms Yellen did not try to change their minds.

Her speech was the last public appearance by a Fed official before the meeting.

But she added that she still expected economic growth and she still expected rate increases.

“If incoming data are consistent with labour market conditions strengthening and inflation making progress toward our 2 per cent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate,” she said.

Some Fed officials have delivered a similar message since the May report.

Ms Loretta Mester, president of the Federal Reserve Bank of Cleveland, has sounded relatively confident in recent months, indicating that the economy was ready for a rate increase. In Stockholm on Saturday, she said that the May jobs report, while disappointing, had not changed her overall economic assessment.

Others have emphasised that there is no reason to rush, suggesting that the Fed should wait for stronger data before moving to raise rates.

An interest-rate increase would be good for China because it would signal demand is rising and the US economy is improving, said People’s Bank of China Deputy Governor Yi Gang at a briefing.

Playing down concerns of spillover effects from an increase, Mr Yi said China has had plenty of time to prepare its monetary policy for a move. Mr Yi spoke on the sidelines of the US-China Strategic and Economic Dialogue, which concluded yesterday.

The US government estimated last week that the economy added 38,000 jobs in May, well below market expectations and the pace of hiring so far this year.

The Fed entered the year predicting quarterly rate increases, only to back away from a first increase in March when the economy showed unexpected signs of weakness. Fed officials in recent weeks insisted they were thinking about raising rates in June. Now it seems that has passed.

Ms Yellen devoted much of her speech to the economic uncertainties confronting the Fed. Among them, she numbered the inconsistency of recent economic data and Britain’s coming referendum on whether to remain in the European Union. She said a breakup would be economically disruptive.

“The uncertainties are sizable, and progress toward our goals and, by implication, the appropriate stance of monetary policy will depend on how these uncertainties evolve,” she said. AGENCIES

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