WASHINGTON, June 2 Reuters U.S. employment increased more than expected in May, but a moderation in wages could allow the Federal Reserve to skip an interest rate hike this month for the first time since embarking on its aggressive policy tightening campaign more than a year ago.

Nonfarm payrolls increased by 339,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Data for April was revised up to show payrolls rising by 294,000 jobs instead of 253,000 as previously reported.

Economists polled by Reuters had forecast payrolls increasing by 190,000.

Despite strong hiring, the unemployment rate rose to 3.7 from a 53year low of 3.4 in April.

Wage pressures are also subsiding, which should offer some comfort to Fed officials battling to bring inflation back to the U.S. central bank39;s 2 target. Average hourly earnings gained 0.3 after rising 0.4 in April. That lowered the yearonyear increase in wages to 4.3 after advancing 4.4 in April. Annual wage growth averaged about 2.8 prior to the pandemic.

The report indicated the labor market remained strong and offered more evidence that the economy was far away from a dreaded recession, though more pockets of weakness are emerging.

Despite massive layoffs in the technology sector after companies overhired during the COVID19 pandemic and the drag from higher borrowing costs on housing and manufacturing, the services sector, including leisure and hospitality, is still catching up…