A December Rate Hike Still Uncertain

Friday’s economic releases may throw a wrench in the Fed’s hawkish rate hike prediction issued after its last policy meeting Wednesday.

Consumer spending and wage growth are the two main factors in a future Fed decision and the latest reports are far from positive.

Personal income increased just 0.1 percent in September, missing even the meager estimate of 0.2 percent and the employment cost index, a major player in any decision taken by Fed Chair Janet Yellen, is well below the number needed for an interest rate hike.

The quarterly release from the Bureau of Labor Statistics indicated that compensation costs for nongovernment workers rose just 0.6 percent in the three-month period, just 2 percent on an annualized basis and a decline from the about what economists had expected but not enough to bring on the rate hike. On an annualized basis, these costs rose just 2 percent, a decline from the 2.2 percent increase seen for the same period a year ago. At the same time, benefit costs increased just 1.4 percent, despite a 3 percent jump in health-care packages.

December Hike in Doubt

According to Steve Blitz, chief economist at ITG, “The FOMC, if true they are tied to trends, can only be disappointed by the trend in consumption and wage growth coming out of the third quarter. Because [if] they really, really, really want to move 25 basis points in December they have to be, by their own rules, now focused on whether the individual data points for the economy in the next six weeks indicate a change in trends to the upside. In other words, the next two payroll numbers mean everything.”

And so, despite enthusiasm on Wall Street that a shift in policy will be introduced, a December rate hike is far from a sure thing.