Jobs effect: Fed fed up with waiting on hike
The Fed wants to go. No, not on vacation. It wants to finally move off 0% and raise interest rates at its December meeting for the first time in nearly a decade.
More good jobs data — starting with Wednesday’s forecast-busting November report from payroll processor ADP that tallies new hires by private employers, to Thursday’s weekly read on the number of Americans lining up for unemployment benefits, to Friday’s big government jobs report for November — should give the Fed the cover it needs to finally hike rates.
The ADP report topped expectations, with private employers adding 217,000 jobs last month, better than the 190,000 forecast. October job gains were also revised up by 14,000 to 196,000. The strong employment report affirms the strength in the labor market and adds credence to the expectation that the Fed will move on Dec. 16 to raise rates for the first time since 2006.
The only thing standing in the way of so-called Fed “lift-off,” aside from the job market suddenly falling off a cliff, which is unlikely, is some other super worrisome development or shock, says Tom Siomades, head of Hartford Funds Investment Consulting.
Siomades expects the government on Friday to report that the U.S. economy again created more than 200,000 jobs, all but cementing a rate hike in two weeks. “Short of the wheel, axle and under-carriage falling off a rate hike is pretty much a done deal,” he says, adding that even a reading as low as 150,000 jobs won’t deter the Fed.
Siomades says the market is ready for the first hike since 2006 and that it is largely priced into the market already.
The best-case scenario, he says, is for Friday's jobs data to come in near expectations. The reason: a bad number could raise questions about the health of the economy just as the Fed is getting set to hike rates. Yesterday's weak November manufacturing number, which showed a contraction for the first time since late 2012, has already raised concerns about one part of the U.S. economy, which is still driven mainly by consumers and the services sector.
The new question will be what the Fed says about its subsequent rate hike plans, he says. For now, the Fed has stressed to markets that the pace of rate hikes will be gradual and deliberate. Fed chair Janet Yellen is giving a speech today, so Wall Street will be listening for more clues as it relates to the timing of the first rate hike and the pace of future increases.
Adam Shell on Twitter: @adamshell.