How Will May’s Big Jobs Report Impact Government Response?

June 8, 2020

The U.S. economy defied expectations in May by adding nearly 2.5 million jobs instead of shedding millions more, as economists had predicted. The data comes as one of the clearest signs that the economy is on track for a swift recovery following the coronavirus lockdown.

While the report was welcome news, the speed with which the economy appears to be bouncing back could have some fiscal and monetary policymakers changing their minds.

The Federal Reserve was swift in cutting rates and increasing its balance sheet once the pandemic began. In April, the central bank said it would keep rates at zero until the it is confident that the crisis has passed and the economy is back on track toward full employment and pricing stability. While the Fed had not established specific conditions to meet before changing course, it is unlikely that one month of good jobs data will substantially change the board’s thinking, and most analysts feel there is unlikely to be any rate changes until 2021.

Though the Fed is unlikely to change, the same cannot be said for congress. While a 13% unemployment rate is still a major problem for the economy, the shift in momentum could alleviate the sense that there is an immediate crisis that Washington needs to address. Analysts still expect some kind of “Phase 4” deal to be reached in July, but how large and widespread the stimulus bill ends up being will be impacted by a raft of economic data, including jobs reports, that will be released in the coming weeks.

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