US jobs growth makes rate rise in December more likely

STERLING HEIGHTS, MI - AUGUST 26: A worker handle parts for Fiat Chrysler Automobiles as they come off the press at the FCA Sterling Stamping Plant August 26, 2016 in Sterling Heights, Michigan. An event was held today at the plant to celebrate the start of production of three all-new stamping presses, whose installation began in July 2015 and cost $166 million. (Photo by Bill Pugliano/Getty Images)

The prospect of an interest rate hike in the world’s biggest economy has taken a step closer after official figures showed the number of US jobs grew by 178,000 last month.

Rate-setters at the US Federal Reserve are likely to see the data as confirmation of a strengthening economy as they prepare for their next meeting later this month.

Markets have already pencilled in a hike for December and there was little to change the view in the latest figure, which was marginally higher than market expectations.

Labor Department statistics also showed US unemployment fell to 4.6%, the lowest rate in more than nine years, though there was a slowdown in wage growth.

Signs of a strengthening economy will give policy makers, led by Fed chair Janet Yellen, room to lift rates, which have been close to zero since the financial crisis of 2008.

The Fed’s benchmark rate was hiked by a quarter of a percentage point in December 2015 but has since remained unchanged.

Volatile market conditions earlier this year kept further increases off the table.

The election of Donald Trump has prompted a rally in the dollar and a sell-off in bond markets, but experts do not think this will be enough to deter a rate rise.

A rise will have repercussions for the global economy especially in emerging markets which are the most sensitive to higher US borrowing costs.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, said the figure “mirrors the momentum we’ve seen in the economy since the summer, which has enjoyed strong PMI figures in both services and manufacturing”.

“However, crucially, the participation rate has not risen, which may take some of the shine off these figures for the Fed,” she said.

“With the US presidential election suspense now behind us, it is Yellen’s rhetoric which will be of most interest to investors as they look ahead at what to expect in the new Trump era next year.

“If as expected, we see a swing towards fiscal stimulus, this may give the Fed greater scope to hike rates further in 2017.

“Fed decision making will no longer be solely data dependent, but policy dependent also.”

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