Strengthening Case for the Federal Reserve to Lift Interest Rates
June 5, 2026
The U.S. Labor Department’s monthly employment situation report for May depicts a stronger labor market situation than realized. A 172k jump in nonfarm payroll jobs was more than double consensus expectations. In addition to upward revisions to the increases in March and April totaling 93k brings the latest three-month average to a robust 188k and far above the 2025 pace. With inflation on the rise, the twin Federal Reserve mandates of price stability and maximized employment no longer offer a conflicting message arguing for a “wait-and-see” approach.
The labor market release documents an unchanged jobless rate of 4.3% but the first dip since February in the broader measure of un- and underemployment. Average hourly earnings declined back to March’s 3.4% from 3.6% in April.
Canada’s May labor statistics were robust, too, showing a 0.3 percentage point decline in unemployment to 6.6%, an 87.8k leap in jobs (most in 17 months, and an ample 3.4% year-on-year rise in average hourly earnings.
The North American reports contrasted with a disappointing downward revision of GDP growth in the euro area last quarter from +0.1% estimated initially to -0.2%, which qualifies as the weakest performance since mid-2020 when the Covid pandemic shut down social activities. Year-on-year growth of only 0.3% was revised to less than half the initial estimated 0.8%. Among Euroland members, GDP fell in 1Q by 12.1% in Ireland, 0.3% in Lithuania and 0.1% in France while stagnating in Portugal and inching up just 0.1% in the Netherlands. Employment growth in the common currency bloc slowed to a 3-quarter low of 0.1%.
Friday also delivered more evidence of Britain’s sluggish housing market via news that the Halifax house price index had posted a third consecutive monthly drop and a year-on-year rise of only 0.5%.
Released Japanese data produced news suggesting that officials are running out of excuses for delaying their next interest rate hike. A record $77.1 billion decline in Japanese forex reserves last month to a 10-month low seemingly confirms heavy direct intervention in currency markets during May to keep the yen steady at the 160 per dollar level. Also, Japan’s index of leading economic indicators surpassed expectations of a drop and instead rise to a 52-month high. The index of coincident economic indicators printed at a 3-month high, and real average cash earnings recorded a fourth consecutive year-on-year advance for the first time in four years. The final piece of today’s contingent of fresh data was a 1.6% monthly jump in household spending during April, resulting in a considerably smaller 0.5% year-on-year decline.
After rising Wednesday, then sliding yesterday, the dollar is ending the week on a very strong note. The U.S. currency has strengthened 1.4% against the won, 0.9% versus the Australian dollar, 0.8% relative to the New Zealand dollar and Mexican peso, 0.7% versus the Indonesian rupiah, 0.6% vis-a-vis the Swiss franc, and 0.5% against the euro. Smaller advances have been made against the yen and sterling, while the Canadian currency is one of the few keeping pace with its southern neighbor.
What’s good for the dollar is bad for the world of crypto, as attested by Bitcoin’s price plunge of 4.5% this Friday. Silver has sunk even farther (-6.0%), while gold sports a loss of 2.8%.
Anticipating a tighter Fed policy path, the ten-year Treasury yield hs climbed seven basis points. comparable European sovereign debt yields are up but much more modestly, and the 10-year Japanese JGB yield held flat.
Equities are experiencing a difficult session. The losses thus far of major U.S. indices range from 0.5% in the DOW to -2.4% in the case of the tech-laden Nasdaq. Earlier in Asia’s day, share prices registered declines of 5.5% in South Korea, 4.2% in Indonesia, 1.3% in Japan and Taiwan, 1.2% in Hong Kong and 0.7% in China. European losses were limited to less than 1.0%.
Talks but no peace deal are going on between the United States and Iran. Meanwhile, the Strait of Hormuz remains mainly closed, and neither Hezbollah nor Israel are paying attention. Hope prevails in the price of Comex oil, which is currently down 2.4% today at $90.40 per barrel.
Turkish inflation remains at the high end of the spectrum. The country reported May figures today showing the CPI and PPI up by 32.7% and 28.9%, respectively compared to a year earlier.
Italian retail sales stagnated in two of the latest three reported months including April. Their 1.6% increase from a year earlier was smaller than forecast.
The French current account deficit of EUR 3.37 billion in the first third of 2026 was 20% narrower than a year earlier.
The Reserve Bank of India’s policy interest rate was left unchanged at 5.25% after today’s scheduled review as analysts had been expecting. The vote was unanimous. For fiscal 2026/27, monetary officials revised projected inflation up a half percentage point to 5.1% and projected economic growth down 0.3 percentage point to 6.6%. In explaining what the current rate, which last got changed in December, was left at 5.25%, a released statement opines,
The Indian economy entered this episode of global turbulence with much better fundamentals than in previous similar episodes. Risk-off sentiments and safe haven demand are imparting volatility to forex markets, with a depreciating trend in many EME currencies. The adverse implications of the extended disruption in supply chains and elevated energy prices are reflected in the moderation of growth and increase in inflation projections from the April policy.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Euroland 1Q GDP, Reserve Bank of India, Turkish CPI and PPI, U.S. employment situation data
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