US looks towards a rate hike early next year
Friday 12th September saw the release of a raft of high-tier US labour data. The data is closely monitored as the Fed have linked the labour market to their interest rate decision. A rate hike is now expected for early 2015 after the Fed said rates will be raised “sooner than anticipated”. Non-farm payrolls failed to meet expectations of 226K, posting a reading of 142K. A selloff in the Dollar occurred swiftly after the announcement before re-tracing back to the low 1.63s. The reason for the retracement is due to the US unemployment rate falling from 6.2% to 6.1%, average hourly earnings rising 0.2% and last month’s reading revised higher to 0.1% (a figure monitored closely by the Fed and linked to the Fed’s interest rate hike expectations). And finally last month’s NFP was also revised higher, only slightly however to 212K. Overall, a disappointing number and its worst reading since December 2013.
Federal Open Market Committee (FOMC)
To combat the poor non-farm payrolls on Friday, FOMC voting member Charles Plosser delivered a speech in Pennsylvania over the weekend. The Federal Reserve Bank of Philadelphia President said the economy has “moved much closer” to the Fed’s goals and keeping rates near zero until achieving them is a “risky strategy”. The importance of this is that Mr. Plosser is one of the voting members and is on the committee. The hawkish comments have reaffirmed the market’s belief that a rate hike could occur early in 2015. Plosser also looked ahead to the next FOMC meeting which is to take place on September 16-17th. Plosser said that changing the language of the statement will be a topic of discussion. Plosser also believes that inflation is gradually moving towards the Fed’s 2% target and that job creation has improved markedly.
Fed officials in June forecast that the benchmark rate would rise sometime next year. US interest rates have been held at record lows of near zero since December 2008 as the Fed battled the deepest recession since the Great Depression.