Quickview: US edges closer to June rate rise
Another strong jobs report in the US puts a June interest rate rise back on the agenda for the Federal Reserve.
The latest employment report showed that the US economy created 257,000 jobs in January, slightly above expectations, but the real story was the revision of the last two months’ figures. Job gains in November and December were revised upward to 423,000 and 329,000 respectively, some 147,000 higher than originally estimated. The unemployment rate rose slightly to 5.7% as the participation rate rose, but we also saw a bounce back in wage growth with average hourly earnings rising 0.5% month-on-month to 2.2% year-on-year. This measure is now in line with the reading from the broader Employment Cost index, which is showing a clear pickup in wage and salary gains.
It is clear that the US economy is beginning to generate some inflationary pressure of its own.
The Federal Reserve could choose to focus on the fall in headline inflation and fret about weakness in the eurozone and China, but it is clear that the US economy is beginning to generate some inflationary pressure of its own. Unit wage costs, the broadest measure of cost pressure, picked up in the final quarter of last year as wages rose and productivity growth slowed.
Markets have subsequently increased the probability on a June rate rise to 25%, up from just 13% last week. We still see this as too low and would put the probability at closer to 60%. The next key date will be Janet Yellen’s testimony to Congress on the state of the economy which is expected in two weeks’ time. Today’s report will have nudged her a little closer toward a June move.
This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.
The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.
Issued by Schroder Unit Trusts Limited, 31 Gresham Street, London, EC2V 7QA. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.