WASHINGTON (AFX) - The fall in the U.S. unemployment rate in May raises the possibility that the Federal Reserve may not cut interest rates at the June 26-27 policy meeting, said Carl Tannenbaum, chief economist at ABN Amro in Chicago.
"I think that the calculus certainly has gone from ... thinking that the next Fed meeting would see a 25 basis point rate cut or a 50 basis point rate cut to, now, whether they are going to do anything more," Tannenbaum said.
The Labor Department said that while non-farm payrolls declined by 19,000 last month, the unemployment rate fell to 4.4 pct from 4.5 pct, against expectations of a rise to 4.6 pct.
The drop in the unemployment rate "is pretty significant", Tannenbaum said, because it carries two implications. First, it means "many of the people being laid off are finding new jobs", he said.
Second, with an unemployment rate below 4.5 pct, the risk of rising wage inflation returns.
This means "the Fed may have to wonder six months down the line if inflation won't be the prime concern" again, Tannenbaum said.