U.S. employers added 38,000 new jobs in May, data released by the Labor Department Friday showed, the lowest monthly reading in almost six years. While Yellen remarked several times on her confidence in “positive forces” that would support job gains, and eventually inflation, she suggested that she needs confirmation of those trends.
Global Bumps
“An important question is whether the U.S. economy could continue to make progress amid fairly considerable global bumpiness,” she said.
On that note, she mentioned the risk of sharp shifts in global investor sentiment and said a British vote on remaining in the European Union could have “significant economic repercussions” which could spill over to the U.S.
That comment alone seemed to raise the bar for a June rate increase. The U.K. referendum will be held June 23.
In addition, Yellen said that she is paying “close attention” to weakness in indicators of future inflation.
The New York Fed’s survey of consumers for the three-year-ahead inflation rate has been in a range of 2.45 percent to 2.79 percent in the first four months of this year, down from about 3 percent in the same period a year earlier.
“If inflation expectations really are moving lower, that could call into question whether inflation will move back to 2 percent as quickly as I expect,” Yellen said, though she expressed confidence that inflation will rise so long as oil prices stabilize and the dollar doesn’t resume its rally on foreign exchange markets, which would dampen import prices.
“The message is she still wants to gradually move interest rates away from zero,” said Ward McCarthy, chief financial economist with Jefferies LLC in New York and a former Richmond Fed economist. “But Friday’s employment number was sufficiently scary in her mind that she became much less specific in terms of the timing of when the next rate hike might be.”