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Tags: ron insana | federal reserve | rate hike | jobs

CNBC's Ron Insana: Rate Hike May Hinge on Jobs Report

By    |   Thursday, 04 June 2015 10:37 PM EDT

CNBC commentator Ron Insana said Friday’s jobs report may be the most crucial factor in the central bank’s determination of hiking rates.

“This recovery is unlike prior recoveries in that underemployment, housing and other aspects of the economy have not risen to levels consistent with interest rate normalization,” he wrote in a blog for CNBC.

“I am hardly an inflation hawk, nor do I believe there is great urgency for the Fed to raise rates anytime before September. However, if job growth accelerates, hourly earnings rise more rapidly and the labor force participation rate finally begins to rebound, then the Fed could have the domestic ammunition it needs to begin normalizing policy,” he wrote.

ADP said the economy created 201,000 jobs last month, while economists expect the official tally of job creation, to be released Friday at 8:30 a.m. EDT, could show job creation of 220,000 new positions, with estimates ranging from 190,000 new jobs to 289,000. The unemployment rate is expected to hold steady at a multi-year low of 5.4 percent.

“If, on the other hand, job gains come in below 200,000, it will take that much longer for the Fed to reach its employment and inflation goals clearly delineated in recent weeks and months,” he wrote.

“If the Fed is, indeed, going to move in September, as many expect, expectations for job growth had better jump above 300,000, or if the data don't overwhelm analysts or the Fed, it could be that the September bet is a losing one,” he said.

Many economists expect the Federal Reserve to soon start raising interest rates for the first time since 2006.

But the Fed has said it will raise rates only once it sees further improvement in the labor market, and is reasonably confident that inflation is headed back to the Fed's 2-percent target. However, with growth in the first-half of the year likely to run below the economy's potential of about 2 percent growth, the timing of a rate hike is unclear.

Policymakers have kept interest rates near zero since December 2008, and most have long thought they would be able to begin to lift rates this year. Even after the economy's dismal first-quarter performance, policymakers stuck to that view, attributing the slowdown to the effects of a severe winter, and predicting a snapback.

Insana's predictions come as the International Monetary Fund urged the Federal Reserve to wait until the first half of 2016 to start raising short-term interest rates because the U.S. economy remains subpar.

In its annual checkup of the U.S. economy released Thursday, the IMF said "the underpinnings for continued growth and job creation remain in place."

But America's "momentum was sapped in recent months by a series of negative shocks," including a harsh winter and a strong dollar that hurts U.S. exports.

The IMF predicted the U.S. economy will grow 2.5 percent this year, down from its April forecast of 3.1 percent.

The agency said the Fed should wait for more signs of improvement — specifically greater signs of wage or price inflation.

"The economy would be better off with a rate hike in early 2016," IMF Managing Director Christine Lagarde said.

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CNBC commentator Ron Insana said Friday's jobs report may be the most crucial factor in the central bank's determination of hiking rates.
ron insana, federal reserve, rate hike, jobs
Thursday, 04 June 2015 10:37 PM
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