Fed Whisperer Makes His Prediction
As one of the few journalists with ears inside the U.S. Federal Reserve, The Wall Street Journal’s Jon Hilsenrath is well qualified to see that an interest rate hike coming. When he says that last month’s job creation record puts the U.S. on track for higher interest rates, markets take it as gospel.
And aside from having stellar sources, Hilsenrath has the benefit of being intimately familiar with how the Fed decides its monetary policy. (Source: “Hilsenrath: Jobs Report Sets the Stage for December Rate Increase,” The Wall Street Journal, November 4, 2016.)
Advertisement
The U.S. economy created 161,000 jobs in October, slightly below the average of 181,000 per month in 2016. However, there was good news in the broader metrics for unemployment, which showed a decline in the number of part-time and discouraged workers.
The headline unemployment rate held steady at 4.9%, while the broader measure (known as “U6”) dropped to 9.5%. Hilsenrath says that 9.5% in U6 is the “lowest point since April 2008, further contributing to the diminished slack narrative.”
Fed officials have repeatedly said they would only raise interest rates if the labor market continued to show improvement. After their November 2 meeting, members of the Federal Open Markets Committee wrote, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.” (Source: “Federal Reserve press release,” Board of Governors Federal Reserve Board, November 2, 2016.)
“This assessment will take into account a wide range of information, including measures of labor market conditions…,” said the Fed in its press release.
Hilsenrath says that, since this month’s data is in line with those expectations, the new data would justify a December rate hike. “Steady gains in hiring and a small decline in the jobless rate last month keep the Federal Reserve on track to raise short-term interest rates at its December policy meeting,” writes Hilsenrath. “Expect them to stick to the message in the weeks ahead that a December rate rise is coming, with a gradual pace of increases to follow.”
