After the very strong US jobs report for November, don’t expect any move on interest rates at this week’s final meeting for 2019 of the US Fed’s Reserve’s top policy committee.
The Fed releases its decision early Thursday morning our time and it will also release updated forecasts on the economy and the future path of interest rates in 2020 and 2021 (via the so-called ‘Dot Plot’ which projects where Fed members think rates will end up in the next year or so).
Fed Chair Jay Powell holds his usual post-meeting media conference and his comments on the Fed’s 2020 approach to the economy and the continuing trade dispute with China, will be closely watched as will his comments on the outlook for rates and inflation.
He has already argued that the Fed will not raise rates without a significant and persistent move up in inflation (and the reverse of that is that will not be a rate cut without a sharp and continuing low rate of inflation from the current level at around 2%.
Data this week will actually update US consumer and producer price inflation. The former is closely watched and will show a core rate of around 2.3% (that’s a different measure to the Fed’s preferred Personal Consumption Expenditure core reading which sits just under 2% at the moment).
Retail sales data for November will be issued on Friday and are expected to again be solid with the late impact of Black Friday (the post-Thanksgiving sales rush) factored in and adjusted for.
The continuing sold jobs growth supports the idea of a reasonable retail sales performance (but with more tariffs on Chinese imports due to start next Sunday) there could be some evidence of US consumers and small business bringing forward purchases to beat the higher prices (The betting is that Donald Trump and the Chinese will reach an agreement to postpone the start of the tariffs).
Friday’s November jobs data surprised on the upside with the 266,000 new jobs (including 46,000 GM car workers returning to work) while wage growth was solid at an annual rate of 3.1%.
The 266,000 new jobs was the highest for 10 months and convinced sceptics that the US economy is not tanking – despite a different measure from the start of month surveys of manufacturing which strongly suggested a slowdown in US industry.
Economists say it is clear now that the three rate cuts from the Fed are starting to have an impact – although business investment continues to be weak.
Driving the 266,000 new jobs was 60,200 new employees in health – while manufacturing recouped the 43,000 lost in October with the GM strike.
The US government said the biggest rise in new jobs since January pushed job growth well above its monthly average of 180,000 in 2019. That is slower that the 223,000 monthly average in 2018.
Economists had forecast payrolls rising 180,000 new jobs in November. There were also an extra 41,000 more jobs in September and October than previously estimated.
Hourly earnings rose 0.2%, after increasing 0.4% in October. In the year to November, wages rose 3.1% after a 3.2% rise in October.