Don't hold your breath for rate cuts

The new numbers are the worst of all worlds for those hoping for Fed interest rate cuts — including the guy in the Oval Office.

State of play: The Fed is on high alert for any meaningful deterioration in the labor market, which could trigger interest rate cuts to try to fulfill its mandate for maximum employment.

• This report didn't provide that — it's hard to square a stable unemployment rate and solid payroll growth with the kind of falloff in the job market that would bring in the rate-cutting cavalry, no matter what the beneath-the-surface details show.
• Meanwhile, average hourly earnings rose 0.4% in May, an elevated level that suggests some residual inflation pressure remains in the job market.
• The policy-sensitive two-year Treasury yield was up a whopping 0.09 percentage points this morning on the news, reflecting expectations that rate cuts are looking more distant.

Between the lines: The Fed's policy committee meets later this month and is all but certain to leave rates unchanged, consistent with its wait-and-see mode for the impact of the trade war on the economy.

• The meeting after that is in late July, but that means there will only be one more month of jobs data by then. A rate cut then also looks improbable, barring a complete collapse in the data in the weeks ahead.
• It's far more plausible that by September there will be enough evidence of a downshift in the job market and economic activity more broadly.

Yes, but: That's not what President Trump wants to hear. "If 'Too Late' at the Fed would CUT, we would greatly reduce interest rates, long and short, on debt that is coming due," Trump posted on Truth Social this morning. "Borrowing costs should be MUCH LOWER!!!"

• "Go for a full point, Rocket Fuel!" he later added.

Reality check: The Fed isn't going to cut interest rates a full percentage point, or anything close to it, unless or until, there is more decisive evidence that the job market is losing steam.