Jobs Report Boosts Case for Interest Rate Hike

Howard Archer, chief United Kingdom and European economist at Markit IHS Global, expects United Kingdom employment to have risen by 80,000 in the three months to January to stand at a new record high of 31.842 mln.

The FOMC’s statement will probably continue to acknowledge ongoing improvements in the outlook for the USA economy following a string of better-than-expected economic data, including the Labor Department’s latest report on the job market.

Federal Reserve chair Janet Yellen said last week that the central bank could raise rates in March if employment and inflation figures met their expectations. Job gains have averaged 209,000 over the past three months, The Hill magazine reported. After 77 consecutive months of net job growth, the nation’s payrolls have grown by almost 17 million.

That means the market is expecting three hikes in the federal funds rate this year, with the rate at 1.25-1.5% in December 2017. During those years, any slight shift in sentiment about when the Fed might begin raising rates – a step that would lead eventually to higher loan rates for consumers and businesses – was enough to move global markets. Benchmark 10-year US Treasury yields took off from below 1.80% at the beginning of November 2016 to trade above 2.60% last week.

Average hourly wages increased by 6 cents from January to $26.09 and were up 2.8% from a year earlier. January’s wage growth was revised up to 0.2 per cent from the previous 0.1 per cent gain.

Some measures of inflation have been edging up as well – although the Fed’s preferred measure of year-on-year price growth remains below its 2%.

Friday’s jobs report is the last major piece of economic data before the Fed’s scheduled policy meeting Tuesday and Wednesday.

The labor-force participation rate increased to 63%.

And consumer confidence in February was at a 15-year high. Spicer later said he didn’t think his tweet had caused any market disruption, telling reporters: “I apologize for being so excited to see so many Americans back to work”.

“In an environment where productivity is still barely rising at all, the Fed can’t allow wage growth to accelerate much above 3%”, said Paul Ashworth, Chief U.S. Economist at Capital Economics. But inflation is already firming, in part as commodity prices rise. But the very fact that the Fed may wish to raise short-term interest rates this week – which would be only its third increase in a decade – underscores not only the strength of the employment market, but also the vibrancy of the USA economy, of which we can all agree is a great thing.

Traders’ view on a March increase, as measured by interest rate futures, jumped to 80 percent from 30 percent in reaction to a barrage of hawkish rhetoric from policymakers.

The solid job market has long outperformed the slow-growing economy.