The Fed hints at a pause amid Congress’ default drama, but new signs of inflation augur more hikes ahead

(Originally published June 1 in “What in the World“) Though the U.S. House of Representatives overcame a far-right revolt to pass a debt-ceiling bill and send it to the Senate in time to avert a government default, Federal Reserve officials are suggesting they may not add to the pressure on the economy by raising interest rates at their policy meeting this month.

Remarks Wednesday by Fed governors Philip Jefferson and Patrick Harker have prompted investors to reverse bets on a rate hike this month. Both suggested that the Fed might hold rates steady so it can assess how its rate increases so far are affecting the economy and whether the stress in the banking system higher rates had caused was abating. Futures markets are now pricing in a 74% chance that the Fed will hold rates steady at the June 14 meeting of its Federal Open Market Committee.

Fed policymakers may still be disappointed, however, by signs of continued strength in the U.S. labor market. The U.S. Labor Dept.’s Bureau of Labor Statistics said Wednesday that that job openings rose almost 3.7% in April compared to March, led by the retail sector, ending three consecutive months in which month-on-month job openings fell.

Job openings fell 14%, however, compared to April last year. And on a quarterly basis, job openings dropped almost 16% in the three months ended April 30 compared to the same three months last year.

The mixed signals in the labor market follows data last week showing that consumer prices also continue to climb. The price index for personal consumption expenditures excluding food and energy, a key gauge for Fed policymakers, climbed 4.7% from the same month last year.

Inflation is also being driven higher by companies raising prices despite recent declines in prices for raw materials and key commodities. That translates into higher profits, but also contributes to the inflationary forces prompting the Fed to keep raising the cost of money.

The debt ceiling bill overcame stiff opposition from House Republicans, including fiscal conservatives who felt it did too little to cut spending, and foreign-policy hawks who felt that it locked in a defense budget that’s too low to deal with growing threats to American interests abroad.