The strong employment figures released Friday keep the Federal Reserve firmly on track to raise interest rates by a half-percentage point at its meeting in two weeks and again in late July to cool high inflation.
Employers added 390,000 jobs in May, the Labor Department said Friday. The unemployment rate held steady at 3.6% as the number of people seeking work increased. Wages rose 0.3% from April, continuing a deceleration that -- if it is sustained -- could make Fed officials slightly less anxious about an overheating labor market.
With Fed officials largely united on the need for half-point increases at their June and July policy meetings, the debate has shifted to what should occur at the following meeting in September.
The jobs report is unlikely to influence that debate significantly because Fed officials have said they are more focused on monthly inflation readings right now and because there will be three more monthly employment reports to digest before the September meeting.
To ease concerns about high inflation, Fed officials would like to see the pace of job growth slow, labor-force growth pick up and wage growth moderate.
Consumer prices rose 6.3% in April from a year earlier, slowing from 6.6% in the year through March, as measured by the Commerce Department's personal-consumption expenditures price index, which is the Fed's preferred gauge.
So-called core prices -- which exclude volatile food and energy prices -- increased 4.9% in April from a year earlier, down from 5.2% in the year through March. The Fed seeks average annual inflation of 2%.
Fed officials have said they could continue to raise rates in half-point increments beyond July if they don't see convincing signs that inflation is slowing.
Some officials have expressed optimism that inflation will ease enough to justify moving to more customary quarter-point rate rises beginning in September.
At the same time, senior Fed officials have signaled that the central bank isn't seriously considering any pause in rate rises in September.
The central bank is looking to raise rates to levels that no longer provide stimulus, which it could reach in November or December, said Fed chairman Jerome Powell in an interview last month.
That level "is not a stopping point. It's not a 'looking-around' point," he said.
The Fed raised interest rates by a half-percentage point last month for the first time since 2000, pushing its benchmark short-term rate to a range between 0.75% and 1%.
With two more half-point increases by the end of July, the rate would rise to a range between 1.75% and 2%, returning rates to levels that prevailed before the Covid-19 pandemic prompted the Fed to slash them to zero in March 2020.
In the past few weeks, more Fed officials have said that the unemployment rate may need to rise as they seek to slow economic growth to bring down inflation.
That has often been a tricky task for the central bank in the past because a recession has almost always coincided with increases in the unemployment rate of more than a few tenths of a percentage point.
The Fed last year maintained aggressive stimulus policies to spur a faster labor-market recovery. Mr. Powell said last month it was possible disruptions from the pandemic had changed the labor market in ways that made current levels of unemployment inconsistent with the Fed's 2% inflation goal.
For now, the unemployment rate consistent with stable inflation "is probably well above 3.6%," he said. Record-high levels of job vacancies and job quitting by workers "suggests a labor market that's out of balance," Mr. Powell said then. "The unemployment rate will shake out where it needs to be."
In a speech last Monday, Fed governor Christopher Waller said he was hopeful that the Fed could bring inflation down without weakening the labor market significantly.
One way that could occur, he said, would be to reduce labor demand primarily by curtailing excess job vacancies and only pushing up the unemployment rate slightly, to just above 4%.
Others have signaled, however, that the Fed, in following through on expectations of a more aggressive policy-tightening path, could cause more volatility in the economy and financial markets.
"There will be bumps along the road," said Cleveland Fed president Loretta Mester on Thursday. "The unemployment rate could rise above estimates of its longer-run level,'' she said.
In March, Fed officials judged that level was between 3.5% and 4.3%.
