(Bloomberg) -- The bar for a Federal Reserve rate hike is falling as the job market remains robust in the face of stubborn price pressures, according to Collin Martin at the Schwab Center for Financial Research.
"If we look at it strictly in a vacuum, the case can be made for a hike right now," Martin, the head of fixed income research and strategy at the Schwab Center, said Monday on Bloomberg Television's Surveillance. "We have inflation that's been high for five years and counting and moving in the wrong direction."
The catalysts for higher rates are strengthening even as President Donald Trump renews his calls for looser monetary policy on the eve of the first Fed policy meeting led by new Chairman Kevin Warsh, on June 16-17. Last week's US employment print showed May job growth topped all forecasts, prompting a selloff in Treasuries and leading traders to fully price in a quarter-point increase in the Fed's key rate by year-end.
"With last Friday's labor market report, the bar keeps coming down," Martin said, adding his base case is for an "extended pause" amid a lot of uncertainty. "We want to see how the next few months play out."
Trump nominated Warsh to lead the Fed after a relentless public campaign directed at predecessor Jerome Powell to cut borrowing costs. The president said in an interview with NBC's Meet the Press, which was recorded Friday and aired Sunday, that "there's no reason to raise interest rates," demanding instead that policymakers lower them.
Some analysts are coming around to the idea that the Federal Open Market Committee may need to recalibrate its stance on policy this year. Economists at Goldman Sachs Group Inc. on Friday scrapped their forecast for a Fed interest-rate cut in December, pushing the timing for easing into 2027.
Martin said an initial step could be for the FOMC to shift its so-called bias to neutral from easing. A continuation of the Iran war could at some point push the committee still further.
"If we continue to see the conflict go on, which is inflationary, and if we see this labor market strength continue, I think that shift to neutral could become a shift to hawkish," he said. "But I wouldn't expect that next week."
Martin added he wouldn't anticipate a "full-fledged hiking cycle. I think we're looking at one or two."
(This story was produced with the assistance of Bloomberg Automation.)
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