Early test for Kevin Warsh: What the strong jobs report mean for Fed policy

Summary

Steve Liesman reports on the strong May jobs report and its implications for Fed policy under new Chair Kevin Warsh. The data raises the probability of rate hikes, with December hike odds jumping to 70%. The discussion explores whether strong job growth is inflationary, the role of productivity in raising the neutral rate, and global factors behind rising yields.

• The May jobs report far exceeded expectations with 172,000 new jobs and upward revisions.
• Market-implied probability of a Fed rate hike in December rose from 44% to 70% after the report.
• Cleveland Fed President Beth Hammack suggested it may soon be appropriate to act if trends continue.
• New Fed Chair Kevin Warsh argues inflation comes from loose Fed policy and government spending, not a hot economy.
• Higher productivity could raise the neutral rate, potentially allowing rates to rise without harming markets.
• Global debt levels and splintering globalization were cited as additional factors behind rising rates worldwide.