Interest rates in the world’s biggest economy are going up before Christmas. That was the clear message from the latest set of US employment figures measuring job creation in November.
Non-farm payrolls – the bellwether of demand for labour in the US – rose by 178,000, almost bang in line with what Wall Street was expecting. This was solid rather than spectacular, but good enough to trigger a move from the Federal Reserve, America’s central bank, when it meets later this month.
Since it last raised rates this time in December 2015, the Fed has repeatedly found reasons to delay another increase in the cost of borrowing. But, after a slow start to the year, the pace of growth has quickened and unemployment has continued to fall, dropping from 4.9% to 4.6% last month.
True, this chunky drop in the jobless rate overstates the strength of the labour market because many Americans have given up looking for jobs and have dropped out of the workforce altogether. The US employment rate is below where it was when the financial crisis broke nine years ago and wage growth remains extremely sluggish. Hourly wage rates actually fell slightly last month.
But this will not be enough to stay the Fed’s hand. It has been signalling for some time that a December rate rise is in prospect: the November jobs’ report was the last piece of the jigsaw. When Janet Yellen, the Fed’s chairwoman, announces the increase she is also likely to suggest that policy will be tightened slowly and steadily throughout 2017.
Some may see this as Yellen, a Democrat and a strong supporter of Hillary Clinton, getting in her retaliation before Donald Trump arrives in the White House. This argument doesn’t really stand up. Relations between Trump and Yellen are unlikely to be cordial, but US rates would have been going up this month even if Clinton had won.
