Mohamed El-Erian says 'Goldilocks' U.S. jobs report will please Fed, markets

A cooling of the labour market should provide welcome relief for the Federal Reserve as it looks to ease the United States economy into a soft landing, Mohamed El-Erian said after the release of April U.S. jobs data.

"A Goldilocks report that will please the Fed and please the markets," El-Erian, the president of Queens' College, Cambridge, and a Bloomberg Opinion columnist, told Bloomberg Television on Friday.

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The data showed that employers dialed back the pace of job creation in April, with a reading of non-farm payrolls climbing 175,000 last month versus the 240,000 forecast by economists. The unemployment rate rose to 3.9 per cent, while a snapshot of monthly wage growth slipped to 0.2 per cent from March.

"I'm not particularly surprised on the miss on job creation, because we have been running at very high levels for the year," El-Erian said. "I'm a little surprised on the wage, the 0.2 per cent, that is the one that surprises me. That's something that one needs to look at much more closely."

Wall Street took the jobs slowdown as an indication that the Federal Reserve will be able to start cutting rates as early as September, with traders sending stocks up sharply as bond yields tumbled.

Equities wiped out this week's losses, with the market also buoyed by Apple Inc.'s post-earnings surge. Treasury two-year yields, which are more sensitive to imminent Fed moves, tumbled 10 basis points to 4.77 per cent. Earlier this week, they had topped five per cent, hitting a fresh 2024 high. The dollar fell against all of its developed-world counterparts.

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The market's reaction to the Friday report should also offer a reprieve for global economies grappling with a stronger dollar as the Fed holds benchmark rates higher for longer, El-Erian said. A Bloomberg gauge of the dollar extended losses after the release Friday.

The yen in particular has suffered from rising U.S. yields this year, and Japanese officials possibly stepped in on two occasions this week to support the currency in what would be the first foreign-exchange intervention since 2022. The yen advanced some 0.8 per cent against the greenback after the release of the jobs data.

"For the rest of the world, because of exchange rates, it's about what U.S. yields do," El-Erian said. "Certainly the Japanese authorities are very happy, between (Fed) chair (Jerome) Powell's more dovish-than-expected press conference and today's number, a lot of the pressure has been relieved. I suspect that around the world people will find some relief."

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U.S. yields and the dollar tumbled on Wednesday after Fed Chair Jerome Powell in the news conference following the central bank's latest policy meeting said a resumption of interest-rate increases was unlikely, even as the outlook for rate cuts remains uncertain.

—With assistance from Lisa Abramowicz, Jonathan Ferro and Annmarie Hordern.

Bloomberg.com

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