U.S. Employment Numbers Too Strong For A Fed Hike

The question of whether the Fed will raise interest rates by the end of the year is still very much in doubt. But inflation numbers to be reported on Tuesday could provide the final clues as to whether the Fed’s first rate increase in nearly a decade will actually take place.

The release of U.S. employment numbers so far in November has subdued expectations of a hike and rising prices are only adding to the solidification of this view. To date, a Reuters poll came in with a 1.9 percent inflation year-on-year, unchanged from the previous reading.

Tuesday will also see the release of the minutes from the Fed’s October meeting. According to Chris Hare, economist at Investec, “We have had a strong October jobs report and Fed Chair Janet Yellen herself referring to a December rate rise as a ‘live possibility’ for the first time. The coming week should shed a little more light on the prospects for tightening this year.”

USD Mixed

Meanwhile, the US dollar turned in a mixed performance last week on the back of the strong jobs data with Fed funds futures implying a 20.5 bp effective rate in December, while the Dollar Index drifted a bit lower. Retail sales rose less than expected in October, pointing to a slowdown in consumer spending that could lower expectations of a strong pickup in fourth-quarter economic growth.

Tuesday’s report will also show falling prices in the UK, suggesting the reason behind Britain’s Bank of England decision to not tighten economic policy by postponing an increase in interest rates at this time.