Friday’s release of the April nonfarm payrolls data in the US was a big miss, with a print of just 160,000 jobs and a negative revision to the previous month's results.
That's indicative of a recent loss of momentum in the US that has prompted the US economics team at Bank of America Merrill Lynch to revise its forecast for Federal Reserve rate hikes from June and December to just one increase in September.
The bank cites three reasons for the change:
- There has been a loss of momentum in the US data, even controlling for distortions to 1Q GDP.
- We believe the Fed is engaging in "opportunistic reflation," targeting inflation above 2%.
- Although financial conditions have improved, there are still concerns about an uncertainty shock related to the markets, UK referendum and US elections.
BAML's economists stress that it wasn't just the weaker-than-expected US jobs report that drove the "revision to our call for the Fed." Rather it was "simply the last of a string of softer indicators that has prompted us to change our forecast."
Interestingly the bank did add an apparent caveat to remind clients that the US economy and the Fed were in a very different position from that of much of the developed world.
"Remember, the economy is still expanding, inflation is still accelerating, and the Fed is still normalizing," BAML said.