The May US employment report changes the landscape for the Fed

Following ambiguous results last month, which everyone could read as he or she wanted, the May US employment report at least clarifies the situation. Not only was job creation more vigorous, but the rise in wages confirmed the trend toward a normalized Phillips curve. In this case, the Fed theoretically has little choice; it must change tack. Forthcoming inflation figures, boosted by oil prices, will make such a change all the more natural, especially as economic activity is strengthening.

Notwithstanding the uncertainties and caution that current trade tensions have aroused, Fed Chairman Jerome Powell would now seem to have little scope for retrenchment. In other words, the May employment report may well constitute a change in the monetary landscape, with in all likelihood, significant consequences for the market.

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