The Federal Reserve (Fed) raised the federal funds target rate (the overnight lending rate it charges banks to borrow money) by 0.25% this week and forecast an additional rate hike for the year, citing a strengthening job market and increased business spending. The Fed also expects to initiate unwinding its $4.5 trillion balance sheet this year.
The U.S. economy added 138,000 jobs in May, well below the forecasted 185,000, while figures from March and April were revised lower. Unemployment declined by 0.1% to 4.3%, mostly due to a drop in the labor-participation rate. Average hourly wages inched up by 0.2% for the month and by 2.5% year over year. The softening of jobs data may cast doubt on the economy’s ability to absorb two more interest-rate hikes this year.