Brace Yourselves For December Rate Hike In The US – Says Macro Scenario And Wage Growth

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The global investors were expecting that the Federal Reserve might not go for the rate hike in December or might slow down their pace of raising the interest rates after the global market rout which was seen recently. However, those hopes are now dashed as the recent wage growth might prompt the policymakers in the United States to raise the interest rate in the December meeting. The non-farm payroll data for the month of October 2018 represented a rise of 0.2% compared to September 2018 and thus helping the annual growth rate to reach at 3.1%. The global investors and market players are expecting that increasing wage inflation coupled with the elevated levels of the employment are supporting the probability that the rate hike in the December meeting is likely to come. 

The Federal Reserve is expected to surprise the investors by raising the rates at a faster speed than normally expected by them. This could make the treasury yields to move northwards. Additionally, speedy hikes in the interest rates would also lead in the appreciation of the US dollar. However, this could make the US President Donald Trump uncomfortable as he is always against the decision of the Federal Reserve of raising the interest rates. Needless to say, the credit of the strengthening US economy no doubt goes to the economic policies which were brought in by the President. On November 2, 2018, the US 10-year treasury note yield rose 8 points to 3.21%. The strong jobs report has completely wiped away the investor’ expectations of slower rate hikes. The Fed needs to keep a close check on the inflation in such a situation as wage growth as well as strong employment numbers might lead to higher inflation.

However, a rise in the yields with respect to the debt instruments negatively impact the global equity markets primarily because the investors become more inclined towards the debt instruments which trigger the outflows from the equities. The total non-farm payroll employment witnessed the rise of 250,000 in the month of October thus, outpacing the expectations of the market trackers of approximately 200,000. Moreover, no change was witnessed in the unemployment rate which was 3.7%. The global economists are of the view that the strong jobs report clearly reflects that the economic fundamentals have been witnessing a robust momentum.

Even though the strong economic fundamentals, wage growth as well as employment levels are at a decent level, the investors are bit worried about their portfolios. The primary reason for this is the disappointing forecasts given by the large technology companies like Apple (NASDAQ: AAPL) as well as Amazon (NASDAQ: AMZN). The giant technology companies can be regarded as the “market movers” as their stock prices movement broadly impacts the entire market.

Bottomline, it seems like the hawkish view of the Federal Reserve is still there and the apex body has been showing no indicators for the quantitative easing or QE. This is because QE might result in higher inflation.


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