Inflation, Employment Key to U.S. Rate Decision in December
Inflationary pressures are emerging when it comes to paying wages to workers in the U.S. economy after robust job gains in recent months. This development may prompt the Federal Reserve Bank to raise interest rates at its December meeting.
“Wage growth held fairly steady at modest levels, although some districts reported rising pressure for certain sectors,” the Fed said in its Beige Book report of anecdotal information collected from business contacts nationwide. (Source: “U.S. economy shows hints of broadening wage pressures: Fed,” Reuters, October 19, 2016.)
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Strong job gains haven’t so far forced wages to go up, a development that will make a strong case for raising interest rates in the world’s largest economy. This is one of the main reasons that the U.S. Federal Reserve has been on the sidelines by holding benchmark interest rates steady since it last raised them in December 2015.
After its last meeting in September, the Fed signaled that it will be ready to act if it sees a clear indication that job growth remains strong and inflation has started to pick up.
The Fed has held rates steady after it hiked them from near zero last December, mainly due to a lack of inflationary pressures. Inflation is currently at 1.7%, below the Fed’s two-percent target rate.
The Beige Book was compiled by the Dallas Fed with information collected on or before October 7, 2016. The Fed’s next policy meeting is in two weeks, although investors foresee a rate hike at the December policy meeting.
Analysts say it’s highly unlikely that the Fed will act during the U.S. presidential elections scheduled for early November.
Employers added 156,000 jobs in September, driven by hiring in health care and retail, and by professional services such as consultancies, the Labor Department said early this month. Monthly job growth has averaged 192,000 over the past three months, strong enough to keep up with a growing population.
The U.S. central bank also said that most districts reported a modest or moderate pace of economic expansion, and that consumer spending was mixed. (Source: Ibid.)
