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Fast Comment USStrong labour market keeps Fed on track for further rate hikes

  1. Employment growth continues to go from strength to strength
  2. Wage pressure building
  3. We expect the Fed to continue to raise rates once a quarter
Employment growth continues to go from strength to strength
Total nonfarm payroll employment increased by 201,000 in August, slightly more than the consensus expectation of 190,000. However, including the -50,000 revision of the previous two months, the level of employment was slightly lower than expected. The unemployment rate was unchanged at 3.9 percent last month. The underlying pace of employment growth of close to 200,000 per month is stronger than we would usually expect at this late stage in the economic cycle, and there is nothing to suggest any significant deceleration in US employment growth at the moment. Employment growth at the current pace is likely to fuel a further decline in unemployment, we believe.
Wage pressure building
Average hourly earnings are still in focus for the Fed. Although wage growth has been trending upward, the pace has been slow. Today’s data indicate slightly stronger wage growth in August. Wage growth was 0.4 percent m-o-m, pushing the y-o-y increase up to 2.9 percent from 2.7 percent in July.
We expect the Fed to continue to raise rates once a quarter
Overall, the labour market is tight, and there are signs that wage pressure is starting to build. Also, inflation has increased, and core PCE inflation hit a six-year high of 2 percent in July. That should keep the pressure on the Fed to continue raising interest rates once a quarter, in our view. We expect the Fed to hike its funds rate two more times in 2018 and probably twice in 2019.

 


 



Disclaimer

Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

anbe83@handelsbanken.se

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