Fed watching jobs report closely
Fed policymakers are watching job data closely, as it gives them insight as to whether the US economy (SPY) (IVV) is strong enough to withstand interest rates hikes. The Fed has already raised interest rates three times this year. The Fed is expecting one more hike in December.
This will be the last job report for the Fed to consider before its December 18–19 meeting. While this report is not expected to have much impact on a December rate hike, which is more or less a given, rate hike decisions in 2019 could take a cue from the overall state of the economy.
Inflation and interest rates
Higher inflation (TIP) will likely need higher interest rates (IEF) to keep the rising prices in control. An unwise choice by the Fed could trigger a recession or lead to the economy overheating, not desirable outcomes for a healthy economy.
While Fed chair Jerome Powell was quite hawkish at the beginning of October before the equity market sell-off started, saying, “we’re a long way from neutral,” his tone changed to dovish in November when he commented that interest rates are “just below” the neutral level.
Jobs report and dilemma
More recently, a part of the yield curve inverted, signaling investors’ concerns about a potential downturn, which could also act as a dampener on aggressive rate hikes going forward. A tight labor market, on the other hand, along with rising wages, could prompt the Fed to be more aggressive.
The number of rate hikes could also change depending on US economic growth (VOO), trade war impacts, and inflation growth.