4th September 2015
Following the announcement of the latest US job numbers some believe the chances of its central bank raising interest rates in September are now “50/50”.
On Friday the US Labor Department said nonfarm payroll employment increased by 173,000 in August, well below the consensus forecast of a 217,000 gain. In addition, the unemployment rate edged down to 5.1%, from 5.3% in July, marking the lowest level since April 2008.
Job gains occurred in health care and social assistance and in financial activities. However manufacturing and mining lost jobs.
Paul Ashworth, chief US economist at Capital Economics described the data as “fairly mixed” , adding that it could be used to make a case for or against an interest rate hike at the upcoming Federal Open Market Committee meeting.
“As far as we’re concerned, the September meeting is a 50-50 toss-up,” he said.
“The decline in the unemployment rate leaves it in line with the Fed’s 5% to 5.2% estimate of the equilibrium long-run unemployment rate. In short, the Fed just achieved the full employment part of its dual mandate. Admittedly, the participation rate remained at a depressed 62.6% and that decline in the unemployment rate was partly due to a 41,000 decline in the labour force last month.”
But Ashworth urged that even if the Fed does not raise rates in September, it will not leave rates at near-zero for much longer.
He added: “Fed officials are still fairly confident that shrinking slack means that inflation will rebound over the next year or two. Next year we expect core inflation to surprise on the upside, forcing the Fed into raising interest rates more aggressively than the markets currently anticipate.”