Michael Darda, chief economist at MKM Partners, told CNBC’s “Morning Call” that Friday’s strong jobs report probably means the Federal Reserve will increase interest rates. John Ryding, chief U.S. economist at Bear Stearns, believes the Fed will stay "on hold for a while " -- and then likely raise rates.
“Frankly, we're looking at a slew of indicators that are all consistent with an economy picking up steam," Darda said Friday. “...The wheels have come off the Fed rate cut call and the weak economy call. So, I think the next move is higher, but in the context of a pretty robust economy.”
U.S. employers added 132,000 new jobs in June, topping Wall Street’s consensus estimate of 120,000. In addition, the Labor Department said 75,000 more jobs than previously estimated were added in April in May.
However, the housing slump complicates the Fed’s next move.
“The Fed’s in a little bit of a bind, since we do have weakness in housing, which is interest-rate sensitive, but we also have signs of excess liquidity and building inflation pressures -- despite the recent good readings on core inflation,” Darda said. “I think [the Fed] needs to be very alert to inflation risks, and ultimately they’re going to have to prepare the market for another tightening.”
Ryding said he believes second-quarter growth will be close to 4%. “I think it leaves the Fed on hold for a while,” he said.
Ryding continued, “I think the Fed will want to see concerns about the mortgage market die down. I think the Fed won’t do anything until we see core inflation pressures pick up a bit. I believe that when the Fed gets around to acting, which could be fourth quarter of this year [or] the beginning of next year, the next move from the Fed is much more likely to be an increase than a rate cut.”