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The American jobs engine revived in June as hiring topped all economists’ estimates, likely eliminating the possibility of the Federal Reserve cutting interest rates more than a quarter point this month – without taking a reduction off the table.

Nonfarm payrolls climbed a solid 224,000 last month, the most since January, after a disappointing 72,000 May advance, a Labor Department report showed Friday. At the same time, the jobless rate ticked up to 3.7% from a half-century low of 3.6% and average hourly earnings increased a less-than-projected 3.1% from a year earlier.

Against a backdrop of subdued inflationary pressures, the wage and unemployment-rate data keep open the possibility of a quarter-point cut in the Fed’s benchmark interest rate, either at the end of this month or later. Traders trimmed bets on rate reductions after the report though still see a 25-basis-point cut in July, and President Donald Trump’s top economic adviser kept pressure on the central bank to act.

“We’ve always seen a more notable deceleration in employment ahead of a cut,” said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, who projected a 205,000 gain in June payrolls. “I’m not as convinced as the market that the Fed has to move in July. Rate cuts are likely coming but the Fed has to be very careful to not be seen as pushed by the market and the White House.”

The report may offer Trump another chance to boast that the world’s largest economy is in the best shape ever. Despite that, he’s made repeated calls for Fed Chairman Jerome Powell to cut interest rates as the record expansion shows other signs of slowing – just as the 2020 campaign begins.

What our economists say

While the Fed dropped “patient” from its policy guidance at its June meeting, the strength in the pace of hiring will enable the FOMC to delay the onset of a mini-easing cycle until September; but the central bank will still need to cut in order to steepen the yield curve.– Carl Riccadonna and Yelena Shulyatyeva, economistsClick here for the full note.

Larry Kudlow, director of the White House National Economic Council, said on Bloomberg Television Friday that the Fed should “take back the interest-rate hike.” The central bank raised rates four times last year, though it was the fourth increase, in December, that’s proved the most controversial.

Though companies still face the uncertainty of trade tensions and inflation remains below the Fed’s goal, the broad hiring gains in June provide a solid backdrop for consumer spending – the biggest part of the economy. Job growth in manufacturing was the strongest in five months, despite concerns about tariffs, while employment was solid in business services, health care, construction and transportation.

“It’s a really, really strong report across the board,” Torsten Slok, Deutsche Bank chief economist, said on Bloomberg TV. “If the Fed is thinking about making insurance cuts, you think about what they are insuring themselves against?”

At the same time, wage growth appears to be flattening out, albeit at a still-strong level. Average hourly earnings rose 0.2% from the prior month, missing estimates, following an upwardly revised 0.3% gain, while annual wage gains held at 3.1%.

The participation rate, or share of working-age people in the labor force, increased to 62.9% following 62.8% as steady wage gains pulled more Americans from the sidelines and into the workforce. The average workweek was unchanged at 34.4 hours.

“A 25-basis-point cut is still on the table,” but the report removes the chance of a 50-basis-point reduction, said Ryan Sweet, head of monetary-policy research at Moody’s Analytics Inc. “It makes the debate for a cut more lively. This job number eases their concerns that the labor market was slowing more abruptly than they anticipated, but the trend is that it’s still moderating.”

With assistance from Chris Middleton, Sophie Caronello, Ryan Haar and Katia Dmitrieva.

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