Federal Reserve Board Chair Janet Yellen.

The argument for a June interest-rate hike from the Federal Reserve has evaporated.

Economists and investors largely agreed that a disappointing employment report for May — the U.S. economy added just 38,000 new jobs — largely eliminated the chance that Fed officials would tighten policy when they meet June 14-15 in Washington, and may make it difficult for them to raise in July.

“As cautious as this Fed has been, it’s hard to imagine that they’re going to go after a report like this,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York.

Comments from Fed officials in recent weeks, including Chair Janet Yellen on May 27, had signaled they were in favor of a rate increase in coming months, with a couple of policymakers going out of their way to raise investor expectations for a move at either their June or July meeting. Yellen speaks again on Monday.

Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said the report “raises some questions about the momentum of growth and about the outlook.”

“This takes June off the table for a Fed hike,” he added. “To get to July, we’re going to need a pretty nice rebound in the data.”

June Odds

Odds of a June hike implied by futures trading, which had risen as high as 34% in late May as Fed officials hinted at their eagerness to raise rates, tumbled to just 4% following the employment report. The odds are based on prices in federal funds futures contracts.

The Labor Department report released Friday showed employers added jobs in May at the slowest pace since 2010 as unemployment dropped to 4.7%, already reaching the level Fed officials expected to see by the end of 2016. The decline in joblessness was hardly good news: it came as people left the work force, pushing the labor force participation rate down to 62.6% from 62.8% in April. What’s more, the share of Americans working part time for economic reasons jumped to the highest since August.

The number of jobs added in April was also revised downward to 123,000 from 160,000.

Carl Tannenbaum, chief economist at Northern Trust Corp. in Chicago stressed that the dismal May numbers couldn’t be dismissed as a one-month aberration.

“The revisions were so significant it does begin to paint a trend of deceleration over three months,” he said. “I find it hard to fathom we’re going to speak a month from now and find all this has been bad dream.”

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