On The Money — Why the Fed has little incentive to halt rate hikes

·5 min read

Today’s jobs report exceeded expectations, but we’ll look at why the Federal Reserve has little reason to change course on raising interest rates to combat inflation. We’ll also get into the June jobs report, how staffing shortages loom large over the busy summer travel season and more.

But first, have you seen why Elon Musk is trending this time?

Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Someone forward you this newsletter? Subscribe here.

Federal Reserve lacks incentive to stop rate hikes

The economy is giving the Federal Reserve little reason to shift its strategy of raising interest rates to lower inflation.

A Friday jobs report showed employment growth exceeding expectations in June despite rising recession fears and plunging consumer confidence. The U.S. gained 372,000 jobs last month, according to the Labor Department, beating the consensus estimates of economists by almost 100,000.

  • Job growth has slowed slightly since the start of the year, but economists had expected it to fall off harder in June under the weight of Fed rate hikes.

  • A recent dip in oil and commodity prices, easing pressure on supply chains and slowing housing sales have boosted optimism among economists that relief from inflation may be on the way. 

  • Even so, a small move in the direction of lower inflation is unlikely to convince Fed officials to ease up on rate hikes and risk losing their chance to bring down prices without triggering a recession — a careful balancing act known as a “soft landing.”

The background: After holding off on rate hikes as inflation rose in 2021, the Fed has sprinted to make up for its mistakes with a series of rapid increases over the past four months. The Fed has raised its baseline interest rate range by 1.5 percentage points since March, including by 0.75 percentage points in June alone.

Fed Chair Jerome Powell and other top Fed officials say the bank will not stop raising rates until they see signs of inflation moving steadily toward their annual target of
2 percent. The personal consumption expenditures price index, the Fed’s preferred gauge of inflation, rose 6.3 percent annually in May, more than three times higher than the bank’s ideal level.

Sylvan and Aris have more here.

JOBS JAMBOREE

Biden hails strong June jobs report, takes jab at Trump

President Biden on Friday hailed the June jobs report, which showed the U.S. economy added 372,000 jobs, noting that there are more jobs in the U.S. than at any time under former President Trump.

“In the second quarter of this year, we created more jobs than in any quarter under any of my predecessors in the nearly 40 years before the pandemic,” Biden said in a statement. “We have more Americans working in the private sector today than any day during Donald Trump’s Presidency — more people than any time in our history.”

  • Biden credited jobs gains to the $1.9 trillion American Rescue Plan signed early in his administration, which Republicans have argued fueled inflation. 

  • The president renewed calls for Congress to pass legislation to lower the cost of prescription drugs and boost U.S. competitiveness with China.

Alex Gangitano has more here.

TRAVEL TROUBLE

Flight cancellations loom large over summer travel season

Airlines endured a better-than-expected Fourth of July holiday weekend, but staffing shortages and other root causes of flight disruptions continue to loom large over the busy summer travel season.

U.S. carriers canceled roughly 1,400 flights between Friday and Monday, according to data from flight analytics firm masFlight. The number is down from Memorial Day weekend and last month’s Juneteenth holiday, when U.S. airlines canceled more than 3,400 flights over four days.

  • The data indicates that Independence Day wasn’t a total meltdown as some predicted, but U.S. airlines still canceled more than 18,000 flights over the last calendar month, or 3 percent of flights. 

  • Carriers reduced their flight schedules by about 15 percent from June to August to reduce disruptions, but they say they still don’t have enough workers to handle the summer travel boom.

Karl has more here.

PRIVACY CONCERNS

House Oversight opens probe into handling of reproductive health data

A House committee has launched an investigation into how companies are handling reproductive health data.

House Oversight and Reform Committee Chair Carolyn Maloney (D-N.Y.) and Reps. Raja Krishnamoorthi (D-Ill.) and Sara Jacobs (D-Calif.) sent separate letters to personal health apps and data broker companies expressing their concerns.

The letters seek information on the potential misuse of sensitive, private data that could be used to invade the privacy of those seeking reproductive health care.

“In an era of unprecedented digital surveillance, the distribution of personal health data further threatens the health, safety, and privacy of people and health care providers across the country,” the letter said.

The Hill’s Sarakshi Rai has more here.

Good to Know

San Francisco-based food delivery company DoorDash formed a political action committee on Thursday, allowing it to directly donate to political campaigns and parties.

DoorDash’s new PAC, dubbed DashPAC, is the latest move by the company to grow its political footprint in Washington. It began growing its team of lobbyists in 2020 at the beginning of the coronavirus pandemic.

Here’s what else we have our eye on:

That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you next week.

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