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Economists at RBC maintain their view that the Federal Reserve will initiate interest rate cuts in June, despite the release of stronger-than-expected Nonfarm Payrolls data. However, they acknowledge that the risks now lean towards a potential delay in rate cuts.
Robust Hiring Sustains Momentum, but Risks Lean Towards Delay
“The sustained robust hiring in US labor markets, evidenced by payroll employment growth accelerating to 303k in March, underscores the strength of the economy,” RBC economists stated.
Although the headline numbers remain solid, the Fed has been closely monitoring other indicators such as a lower quits rate, declining job openings, and moderating wage growth. These factors indicate a potential unwinding of tight labor market conditions and suggest that risks associated with the Fed’s dual mandate are gradually balancing,” they added.
“The variability in progress with inflation, particularly evident in early 2024, implies that the Fed may need to maintain its current rate stance for a longer duration,” the economists noted.
While RBC’s base-case assumption remains that the first rate cut will occur in June, they acknowledge that the risks now favor a potential delay in implementing such measures.
