El-Erian Says Strong Jobs Data Closes Door on July Fed Rate Cut

What You Need to Know

Nonfarm payrolls climbed 272,000 last month versus the 180,000 forecast by economists.
There is no way the Fed can signal a cut regardless of the CPI number reported next week, Allianz’s chief economist says.
A too-quick move by the Fed would be tough to correct, he says.

Stronger-than-expected U.S. May jobs data closes the door on a July Federal Reserve rate cut, Mohamed El-Erian said.

“This is a really strong report in terms of demand for employees and in terms of wages paid,” El-Erian, the president of Queens’ College, Cambridge and a Bloomberg Opinion columnist, told Bloomberg Television on Friday.

The pace of job creation blasted past expectations in May, with nonfarm payrolls climbing 272,000 last month versus the 180,000 forecast by economists and a small downwardly revised gain of 165,000 for April. The unemployment rate edged up to 4%, while a snapshot of monthly wage growth picked up by a more-than-forecast 0.4% from 0.2% in April.

“It does close the door on a July rate cut, regardless of what the CPI number says next week,” said El-Erian. “There is no way they can cut or signal a cut in July with this data.”

U.S. Treasury yields jumped around 13 basis points in the wake of the data, with the sharp selloff reflecting a substantial market rally since late May. After the jobs data Friday, the Treasury market sharply pulled back from pricing in two quarter-point cuts this year, between September and December.

Next week, the Fed will conclude its two-day policy meeting after the May consumer price index has been released. Together with the May employment report, the data will guide the central bank’s quarterly update of its economic and interest-rate projections for the rest of this year and into 2025.