New Zealand unemployment rate stays at 5.1%, labor market barely expands
New Zealand’s employment report for the first quarter indicated that the labor market remains soft. The good news was that the unemployment rate remained unchanged at 5.1%, below the market estimate of 5.3%. Still, unemployment remains at its highest since Q4 of 2020 – a year ago, the rate was just 3.4%.
Employment change posted a small gain of 0.1%, up from a revised -0.2% in Q4 and in line with the market estimate. Wage inflation edged lower to 0.4% from 0.6%, lower than the market estimate of 0.5%.
How will the Reserve Bank of New Zealand react to the latest jobs report? The central bank has been aggressive, slashing the cash rate by 200 points since August 2024 to 3.5%. Today’s employment report supports the case for a rate cut at the May 28 meeting and for further cuts during the year. At the April meeting, members warned that the tariffs created downside risks for growth and inflation in New Zealand.
The RBNZ released its Financial Stability Report on Wednesday with a warning that the impact of US tariffs on New Zealand could be “severe” and that there was considerable uncertainty over the outlook for global trade. The report noted that the impact of indirect tariffs on “key trading partners” (likely as reference to China) could be even more damaging that direct tariffs.
Fed expected to stay on the sidelines
The Federal Reserve is almost certain to maintain interest rates at today’s FOMC meeting. There’s little doubt about the decision but the markets will be all ears as to the amount of pushback from Fed Chair Jerome Powell, after President Trump has repeatedly pushed him to lower rates.
The markets have priced in a 30% chance of a cut in June, compared to a 63% likelihood just one week ago, according to CME’s Fedwatch Tool. We can expect the pricing of a June cut to continue to swing, as the tariff saga continues.
