Citi: May jobs report likely to support further Fed rate hikes

Investing.com -- The May employment report due out on Friday will likely provide further support for the Federal Reserve to extend its recent interest rate hiking campaign, analysts at Citi said in a note.

The analysts predicted on Wednesday that payrolls would grow by a "solid" 200,000 during the month, while average hourly earnings would rise by 0.3% and the unemployment rate would remain at a "low and stable" rate of 3.4%.

These figures would "convince Fed officials that stronger activity and inflation require additional tightening," the Citi analysts said.

In April, the U.S. economy added 253,000 roles, average hourly earnings climbed by 0.5% month-on-month, and the jobless rate came in at 3.4%.

The Citi analysts flagged that markets, which are already broadly pricing in a rise in borrowing costs at the Fed's two-day meeting starting on June 13, may be sensitive to a "downside surprise" to last month's job numbers. They noted that "weaker job growth in May and over the upcoming months could be either a result of softer demand or labor supply shortages."

They subsequently reiterated their prediction that the Fed will raise rates by 25 basis points twice over the next two months, once in June and again at its July gathering.

Policymakers have said they will be keeping a close eye on the employment readings to see if their over year-long policy tightening cycle is cooling the labor market. In theory, this softening could contribute to a slowdown in inflation.