Some of the signals are mixed, but many economists are still of the view that a rates hike in September is the most likely expected scenario.
This opinion is based on the release of the June employment situation summary released by the U.S. Bureau of Labor Statistics last week. Commenting shortly after the data release, Michael Feroli, chief U.S. economist at J.P. Morgan Chase said, “We came into work this morning thinking the Fed would move in September and we feel even more confident right now”.
The indications to be drawn from the June figures are that the labor market is strengthening, including the number of those who are working part-time for economic reasons and downward pressure on long-term unemployment which at 5.2%, was at its lowest figure since 2008.
A Reuters report, quoting Ted Wieseman, an economist at Morgan Stanley in New York, was less optimistic about a rates hike as a result of the June employment numbers. Wieseman said that while the economy has shown positive signs moving into the second half of 2015, the recent report is still insufficient to prompt the Fed into acting any time soon.
The positives in favor of a September rate hike are that payroll increases for the first five months of 2015 are running above the average while the unemployment figure of 5.2% is very close to the 5 percent figure the Fed considers consistent with full employment.
Meanwhile, BNP Paribas economist, Bricklin Dwyer, agreed that the job report was indicative of a healthy labor market saying that “things are still on track for September.”
Fed officials have said there are two conditions needed for a rate hike; a healthy job market and confidence that the inflation rate is moving towards the 2% annual figure which the central bank has set as a target.
Despite some reservations about the health of the job market, Tom Simons, an economist at Jefferies, also had some reservations as a result of the flat hourly wage earnings in the June report.
With consumer spending, as a result of wage growth, an important factor in pushing the inflation index upwards, the lack of wage growth “dramatically reduces the chances the Fed will go in September”, Simons stated.
The consensus is that the Fed won't move rates at its next meeting scheduled for 28 and 29 July as a result of the June numbers and also the current uncertainty over the Greek crisis, although there might be more certainty in that regard by the end of July.
The effect of the Greek “No” vote in Sunday's referendum and the Eurogroup reaction will be closely watched by the markets in the coming weeks. As clearly stated in the last words from economist Ferroli, “By the time we get to September, we'll know if Greece is having a big effect on financial markets”.