The May employment report was released on Friday and was weaker than expected. On the positive side, the unemployment rate fell to 4.3% from 4.4% in April. The current level of unemployment should be putting upward pressure on wages; however, the non-accelerating inflation rate of unemployment (NAIRU) appears to be lower than most experts predicted. Average hourly earnings, which I have been watching closely, increased by a disappointing 0.2% in May, leaving the year-over-year increase at a stable 2.5%. Given the Federal Reserve (Fed)'s fear of deflation, I expect them to be extremely cautious over the next several months in their monetary policy tightening. I continue to expect a 25 basis point increase this month but anticipate more dovish comments.
The week ahead will be busy with continued fallout from the terror attacks in London, the U.K. election and a full schedule in Washington. Notably, former FBI Director James Comey's testimony on Thursday will keep the market’s attention. My longer term views remain unchanged but the next few weeks could be bumpy for the markets.
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