Strong US job growth, rising wages set stage for Fed rate hike
- Author: Zachary Reyes Mar 11, 2017,
Mar 11, 2017, 5:37
The February jobs data likely provided the final piece of evidence the Fed needed to raise rates at its next policy meeting Wednesday, the third hike in 15 months. Its estimated figures are usually high - this time they were more than 60,000 jobs north of the actual figures - but its breakdown of the statistics is widely respected and caused analysts who had predicted some slowdown to revise figures upward. Economists expect a 0.2 percent increase in import prices, while it grew 0.4 percent last month.
The employment-to-population ratio rose to 60 percent, the highest since February 2009, from 59.9 percent in January. So the Fed is likely to take this month's strong job numbers as a green light to tighten monetary policy.
There was also cheer on wage growth - rising at a rate of 2.8% versus 2.6% in January.
At the same time, jobless claims are at a 44-year low, the stock market is surging, and consumer spending is growing, bolstering the case for those who argue the economy is strong enough to withstand a rate increase.
The U.S. central bank lifted its benchmark overnight rate in December and has forecast three rate increases for 2017.
"We're very close to achieving our dual mandate goals", San Francisco Fed President John Williams said on February 28 in Santa Cruz, California.
That may be by design, he said, noting that Yellen may have opted to run the economy a bit hot to draw more Americans into the workforce.
Yellen herself has said "it's unclear" how much of a direct effect wage increases have on inflation.
"It's getting tough to decipher the underlying trend when you remove the weather factor", he said. "And movements in wage growth gives us a sense of just how tight labor markets are". "And most importantly, no durable and significant acceleration of wage growth to healthy levels has happened yet". The US economy is now in its 77th consecutive month of growth. That's what led to the last two recessions, with the peaking of the Dot-com share price boom in 2000 and the bursting of the housing market bubble in 2007.
A second straight month of robust hiring pointed on Friday to a USA economy healthy enough for the Federal Reserve to raise interest rates next week and to signal the likelihood of additional rate hikes ahead.
This was the missing piece of the puzzle that Fed watchers had been waiting for to make tighter credit a near-certainty when the USA central bank's chiefs meet next week.
"The Fed has to put some risk back into investing", said Carson, director of global economic research at AllianceBernstein LP in NY.
"Last week, Fed officials virtually pre-announced a rate hike and have effectively said it is a done deal", said Jim O'Sullivan of High Frequency Economics, the top forecaster of USA economic data in Reuters polls for 2016, the second year in a row he achieved that distinction.
Foroohar said the question becomes what happens after that.