In our view, the jobs report for October was solid despite moderate headline employment growth of 161,000, especially as the unemployment rate fell and wage growth was at the highest since 2009.
On the back of the solid jobs growth and the growth pickup in H2 17, we have changed our Fed call and now think a December hike is very likely (previously we expected a hike in March 2017).
While the US election is a risk to our new Fed call, we do not think a Donald Trump victory would change the Fed's perception of the economy.
If the Fed hikes rates in December, the next question is how many hikes to expect next year? The 'median' dot in the September projections indicated two hikes. However, the Fed is set to shift in a more dovish direction due to a shift in voting rights. It could be we should get used to a hike once a year. We will wait to clarify our view on this until we know the US election result.
Markets have more or less priced in a Fed hike by year-end as much as possible (70% probability) given that there are still one and a half months before the December meeting.
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