October’s labour market – what next for US interest rates?

Yesterday it was announced that Jerome Powell was handpicked by President Donald Trump to become the next Federal Reserve Chair. The Senate will confirm whether he will actually become the Chair of Fed before February, when Janet Yellen hands over the reins.

The senate tends to be just a formality, whoever the President picks, normally goes on to secure the seat. Jerome Powell, having originally trained as a lawyer, went on to become a partner in one of the world’s largest investment banks. He is considered by many as a hawkish choice. It’s no secret that President Trump wants interest rates to be raised at a faster, more bullish pace than that of this year. The US economy will likely hike another 3 – 4 times next year and in my opinion Jerome Powell has been appointed with this in mind, strengthening the US Dollar.

However, today’s Labour market will have no doubt confused policy makers even further. Non-farm payroll data released today rebounded from a below par reading in September. The reading wasn’t quite what was expected (consensus 312K vs actual 261k) however it shows that the hurricanes in the southern states have seemingly been shrugged off. This combined with the unemployment rate dropping to 4.1% paints a positive picture for the US economy.

Or so we thought… even though people are now back in work at full capacity, wage growth data makes raising interest rates a difficult question. The data showed that wage growth was stagnant throughout October despite overall positive economic growth. This combined with below par inflation means that raising US interest rates might not be as straight forward as first thought.