The number was in line with consensus forecasts of 180,000 and offers little in the way of easing inflationary pressures building in the world’s biggest economy.
“This was the last hurdle on the path to a December hike, and it has been cleared convincingly. It is now incredibly hard to imagine what would stop the Fed from going,” said Aberdeen Asset Management investment manager Luke Bartholomew. “The debate now is all about what rates will do next year and beyond.”
“For a long-time markets have thought rates would rise very gradually. But Trump’s victory has tested that conclusion,” Bartholomew continued. “The Fed will want to offset any significant fiscal stimulus that Trump manages to enact. There’s a good chance that Trump might view that as an attempt to undermine his plan given how hostile he’s been towards the central bank. That could lead to a showdown between President and central bank which financial markets would not take kindly.”
One thing that could muddy the waters slightly however, is that despite the new jobs being added, wages fell slightly to sit 0.1% lower on average.
“A rate hike in December is unlikely to be derailed from the afternoon’s jobs report, but a poor wages number does give Janet Yellen food for thought,” said Alex Lydall, head of dealing at Foenix Partners. “The headline figure of 178k was solid – along with a significant decrease in the unemployment rate to 4.6% – but the premise of extra fiscal stimulus in a Trump era and letting wages naturally increase as the Fed have reiterated, could leave Yellen pondering future hikes if wages stutter.”
According to economic consultancy Fathom Consulting the ‘real story’ today was the drop in the unemployment rate to a nine year low. Fathom said that readings can be distorted from one month to the next, but the falling unemployment rate is consistent with a tight labour market and a low breakeven rate of payroll growth, which we estimate to be around 60,000 per month.
Looking ahead Fathom expects the labour market to tighten faster than investors currently anticipate, pushing US inflation, interest rates and the dollar even higher.
