• This week produced another batch of relatively firm economic data. The pace of hiring in the U.S. slowed in May, yet the economy produced 138,000 jobs and the unemployment rate declined to 4.3%, a 16-year low.1 Meanwhile, consumer spending in April bounced from the relatively weak readings of the first three months of 2017.2
  • The consumer spending figures seemed to confirm the FOMC’s belief that the weakness in first-quarter economic growth was likely due to “transitory factors” and firmed up investor expectations that the FOMC will raise interest rates at its mid-June meeting.3
  • At the same time, however, inflation has shown signs of moderating recently. Personal consumption expenditures, the Fed’s preferred measure of inflation, declined in April and, on a year-over-year basis, fell further below the 2% mark.2
  • In a speech on Tuesday, Fed Governor Lael Brainard noted that persistently soft inflation data could cause her to “reassess the appropriate path of policy.”4
  • Investors recently also appear to be questioning whether the Fed might alter its policy path and stop at two rate hikes in 2017.5 The market-implied probability of the FOMC enacting three rate hikes this year has declined from a peak of nearly 50% on May 10 to only approximately 36% this week.5

1 U.S. Department of Labor, http://bit.ly/2iYbHWM.
1 Federal Reserve Bank of St. Louis, http://bit.ly/2d3pN5b.
2 U.S. Department of Commerce, http://bit.ly/1cR0IcA.
3 Federal Reserve, http://bit.ly/2qGwxBe.
4 Federal Reserve, http://bit.ly/2qFPpfY
5 Bloomberg, based on CME data.

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