Fed rate hike in March is in the cards after banner jobs report

The solid December employments information alleviate fears around an abating U.S. economy and keep the Federal Reserve on track to hike interest rates in March.

“Everything is indicating a March hike,” said Aneta Markowska, chief U.S. financial specialist at Societe Generale in New York.

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The economy delivered 292,000 employments in the last month of 2015, said the Labor Department on Friday. Financial analysts were searching for a 215,000 increase. Similarly impressive, job growth arrived at the midpoint of 284,000 employments in the last three months of the year, the quickest pace in just about a year.

“Plainly firms have chosen to employ regardless of the possibility that candidates are not the ideal match,” said Joel Naroff, president of Naroff Economic Advisors.

Traders who wager on rate hikes utilizing fed funds futures contracts now anticipate greater than-even odds of a March rate increase, as per CME FedWatch. Odds of a hike in rates then had slipped beneath 50% chance recently as stock markets fell on worries that China’s economic weakness, the world’s second-biggest economy, could overflow into the U.S.

Another worry for market analysts has been following evaluations of fourth quarter U.S. development, which have been falling to a 1% yearly rate, down from a 2% rate in the third quarter. The fourth –quarter gross domestic product reading is due Jan.29.

“The labor market data gives me some comfort the GDP data is noise as opposed to a genuine weaker pattern,” Societe Generale’s Markowska said.

Economists think it is only a matter of time before wage gains accelerate, although average hourly rates slipped in December.
“The data means the labor market continues to improve, and if that continues we will get wage pressure and normalization of inflation. The Fed is on track of getting closer to their mandate,” Markowska said.
While the Fed’s baseline forecast calls for four rate hikes, the market expects the Fed to hike twice in 2016.

Developments in inflation rather than the labor market should determine whether investors or the Fed turn out to be right, said Paul Ashworth, chief U.S. economist at Capital Economics
The Fed is unlikely to raise rates at its Jan. 26-27 meeting, but is probably on track to move again at its March 15-16 meeting, said Sal Guatieri, senior economist at BMO Capital Markets.

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