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Key Insights Ahead of May’s Jobs Report

After a strong April report, May data is expected to continue the recent strength of job growth.

ADP reported growth of 178,000, slightly below the anticipated range for May. Non-farm payrolls are anticipated to grow between 155,000 and 220,000 with a consensus of 190,000.

Most notably, the unemployment rate dropped to 3.9% from 4.1% in March. Elsewhere, the focus remained on the lagging rise in wages as a jump would have more broad implications with the Fed policies. Rising wages are believed to be a strong indicator of rising inflation, hence the increased scrutiny given the current Fed practices.

With the current Fed funds rate at 1.75% and the goal for the Fed to be at 2% in 2018, a strong number tomorrow could almost assure the next meeting will end with the Fed Funds rate moving to the longer-term goal of 2%. Even a number in the middle of the range with a continued low wage growth value would likely be enough to assure a rate hike. At this stage, it’s all about how much control the Fed believes they have over inflation.

While things appear to be steady, an unexpectedly low number could delay this hike and cause short term volatility in the markets. A surprise number would certainly cause some large moves in the Fixed income markets especially. Thus, employing proper risk mitigation measures, such as protective stops and targets, is paramount.

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