Schroders Quickview: Case for US rate rise boosted by jobs surprise

Despite Friday's strong jobs data, we see little need for the Federal Reserve to aggressively tighten monetary policy.


Keith Wade

Keith Wade


Labour stats adds fuel rate rise fire

The Bureau of Labor Statistics reported on Friday that US jobs growth surged in October, with non-farm payrolls up by 271,000 for the month, far exceeding the median market forecast of 185,000.

There was strength all round, with the unemployment rate falling to 5% and wage growth picking up to 2.5%. So we are now getting some evidence that the tightening of the labour market is feeding through into higher wages.

This reinforces the case for a rate rise in December, which Fed Chair Janet Yellen has said is a “live” meeting, meaning that a rate rise is on the table.

If we do see a rates “lift off”, which is not certain as there is still another month of data to come, we would expect it to be accompanied by a dovish statement.

The balance of inflationary risks has tilted a little towards higher inflation, but with current inflation close to zero, wages only rising modestly and the rise in the US dollar doing some of the Fed’s work for them, there is little need to tighten aggressively.